Credit experts always advise consumers to get a copy of their free annual credit report but many often ignore this advice. If you are thinking about getting a home loan, car finance or even a credit card, it might be prudent to view your own credit ratings history before you apply. With credit policy being tightened across the board, financial institutions find themselves more inclined towards turning down average or below par applicants with poor credit ratings.
Numerous credit consumers have to face rejection from financial institutions owing to credit errors which were not caused by them. It is therefore important to repair your credit report and improve your score as soon as possible.
Alison had a credit card with a credit institution. Although Alison had been very regular with her payments, owing to a system error, her payments were not recorded and were being credited to another account. Her account showed defaults for over two and half months. Alison was completely unaware of this, till she applied for a mortgage. Her application was rejected owing to her repayment history.
Kylie Mathews had a poor credit rating and was unable to obtain finance without agreeing to pay higher credit interest rates.
For poor credit rating customers, getting a good credit interest rate is becoming a bigger problem during the recession. One fact to remember is that your individual FICO credit score has a directly proportional relation to the credit interest rate that will be offered to you (i.e. the better your FICO score the better the credit interest rate).
As we experience a credit squeeze like never before, it is mandatory that consumers understand what a good FICO credit score is and how it can be improved for a better personal credit rating.
What is Your Fico Score Chart Made Up Of?
Primarily your Fico credit score is dependent on the following factors:
Nearly 70% of all new cars purchased are on finance, making car loans one of the most popular types of consumer loans at present. However, despite the initial attraction of car financing, several borrowers later have trouble keeping up with their loan repayments, which ultimately affects their credit scores. As per a recently conducted Kelley Blue Book study, sixty per cent of car loan shoppers are now choosing longer term car loans as a way to reduce monthly repayments. While this is a smart move, reduced repayments alone cannot keep things in control and some other factors must be considered as well.
When Tevita Henare came in for some professional advice regarding her mortgage loan the only questions on her mind were “How can I manage my mortgage loan better?” and “How can I improve my credit report” . Needless to say, in recent times more and more mortgage loan holders seem to be affected by this, hence this might be a good time for mortgage holders to learn how to manage their mortgages better and thereby improve their situations and credit reports.
Mortgage loans are one of the most important credit contracts consumers can get. It is mandatory that you manage this credit contract the best you can, so that it does not negatively impact your credit report or impair it any further. Below are a few points that would help you manage your mortgage loan better.
1. Timely Payments
The first and probably most important step towards managing your mortgage loan efficiently is making timely mortgage repayments. Analyze your individual pay cycle and depending on whether you get paid weekly, fortnightly or monthly, talk to your bank to arrange your mortgage repayments accordingly. These can be arranged either via a direct debit or via self credit (this is where you pay the nominated mortgage loan account yourself). Try to ensure that the payments fall a day after the money from your salary or wages have come into your bank account. This will ensure that you never miss a payment.
2. Contact Your Funder
If you think that you are going to struggle with your mortgage loan repayments for a specified period, contact your mortgage lender immediately and inform them of the situation. They may be able to defer your mortgage interest payments or allow the interest payments to be capitalized Capitalizing means that the interest payments get added to your loan amount for the duration that you are unable to make the repayments. The last thing you want is for a missed repayment to appear on your credit report.
3. Increased Contributions
If you have received a pay rise, have worked overtime or find that that at the end of the month you have surplus monies left over, put these extra funds towards your mortgage loan. This will help you build up a buffer (surplus of cash in your mortgage account which can be drawn down later at the mortgage holder’s discretion) for future contingencies and unexpected commitments.
4. Use an Offset Account
An offset account could be a very handy tool in helping you combat the rise in your mortgage loan repayments. An offset account, in most cases offers you the same interest rate as that of your mortgage loan. Hence it is wise to have surplus funds in your mortgage loan offset account as this will help reduce the interest payments on your mortgage loan.
5. Don’t draw out equity unnecessarily from your home
This is a very common mistake which mortgage clients make. Most mortgage clients do this in order to combat their spending habits. Drawing out the unused equity from your home is not a good idea.
Let us assume that your home is worth $350,000 and you have taken out a mortgage loan on it worth $280,000.00 (80% of the property value to avoid Loan Mortgage Insurance Implications, also known as LMI). In about 2 years time your home is worth $385,000 assuming a 10% increase over 2 years and your mortgage loan is down to about $250,000. In this situation the available equity in your property is 80% of $385,000 = $308,000 less your mortgage loan balance of 250,000 which is equal to $58,000. This means that you can increase your mortgage loan by getting an additional $58,000 from the mortgage lender without having any LMI implications.
Doing this is a bad idea because the progress you had made towards repaying your home off sooner will have been undone. This not only leverages mortgage clients further but also adds another credit enquiry to your credit report.
6. Understand the Mortgage Product You Are In
It is very essential that you understand the type of mortgage loan product you have. Mortgage loans can be of various types. Most mortgage clients use the standard variable options in which the bank provides you with a product that uses the bank’s standard variable rate. In most cases these products have user and management fees, which can be charged to your mortgage loan account.
It is essential that you are aware of the fees and charges related to your mortgage loan account. These fees and charges can sometimes make your mortgage loan appear to be in arrears, which looks detrimental on your home loan statements and if ignored can trickle down to your credit report. Another situation is where in certain cases banks might charge you a penalty for excessive mortgage contributions. Banks can set a ceiling on the amount a client can contribute over and above the minimum repayments in a year. Mortgage clients should be aware that they do not exceed this limit or else they are running the risk of being penalized by the bank.
Another very powerful mortgage loan product is a Line of Credit, also known as an LOC. A line of credit allows the mortgage loan client to make the minimum repayments while allowing the mortgage interest to capitalize as long as the loan amount stays below the master or the global limit (Master/Global limit is the maximum loan amount that is allowed under the particular facility for the mortgage loan client). This can be a very useful mortgage loan management tool.
7. If Interest Rates Fall Do Not Reduce Your Contributions
A common mistake mortgage holders make is to reduce their repayments as interest rates fall. Keep your mortgage loan repayments constant as this will allow you to pay off you mortgage faster and this helps reduce the overall debt levels on your mortgage loan. Clients must remember that if interest rates are falling owing to troubled economic conditions, they will rise once the economy starts to stabilize. Hence it is better to get used to higher repayments rather than have to adjust with a sudden increase in mortgage repayments.
8. Fixing of Interest Rates
In certain cases if you feel that you are comfortable with the current interest rates and mortgage loan repayments and you are anticipating future mortgage interest rate rises, it might be a good idea to lock in your interest rates for a fixed period depending on your mortgage lending facility. This will help you get on top of all your mortgage repayments and prepare for when you come out of the fixed rate period.
9. Budgeting
It is always a good ploy to create a budget around your mortgage loan repayments. Once you have factored in your monthly mortgage loan repayments you can work out how much of a surplus of funds you have to meet all your other expenses. Once you have worked this out and have estimated your total monthly expenditure you can work out if you are in a situation to make extra contributions towards you mortgage loan or offset account.
10. Refinancing
In certain cases it might be better for clients to refinance out of their existing mortgage facility. This is more common in cases where existing mortgage loan clients are in a product which has an excessively high interest rate or the mortgage loan product they are in does not provide them with the flexibility and ease of management when compared to some of the other mortgage loan products available in the market.
These tips provide you with a guideline to better manage your mortgage loan. Do not forget that mortgages are very important consumer credit facilities and it is advisable that mortgage loans should be managed efficiently. Missed mortgage repayments, mortgage arrears or mortgage defaults and court judgments can irreparably damage your credit report and your ability to get a consumer loan.
Take these few simple and easy steps towards better managing your mortgage loan facility and improving your credit report.
Equifax, Experian and TransUnion are three main credit bureaus or credit reporting agencies that are working these days. These agencies or bureaus gather information about consumer credit and different landlords, lenders, utility companies and insurers use the information to decide about the approval of some loan as well as determine interest rates. While on the other hand, the same information are used by the consumers as they help them to manage their financial profile in a better way. Aside from getting credit information, these credit reporting agencies distribute the information to different institutions. These three credit bureaus separately and independently collect their information that’s why your credit scores may appear different in different report from these bureaus. Let’s talk about these credit bureaus.
Equifax
Equifax has been conducting this business for more than one hundred years. The headquarters of the company are in Georgia, Atlanta and it also has several offices in many other countries of the world. Equifax caters large as well as small businesses and provide assistance to individual consumers to get right credit reporting. However, one shouldn’t reckon that their every report is error free, but they provide good assistance to instantly correct your credit report.
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Many people reckon their credit report reports something like a mystery novel and find it quite difficult to understand. These people never know what’s going to come forward if they do not read their credit reports properly and related to each and everything. Don’t be tenacious; just reckon yourself powerful enough to grip each and every information on your credit report, keeping this fact in mind that it can affect your financial life a lot.
If you want to boost your credit score, you definitely need to make it sure that you are paying debts on time and they have been properly listed in your credit report. These different accounts are referred as trade lines and it is possible that some company may forget to report it to credit reporting agencies no matter how well you have been dealing with it and you must thoroughly check that good information making their way into your credit report canceling out bad information.
Building a positive and strong credit report is very important to have strong financial impression. It is also important because it helps to impress the lenders and creditors to evaluate you as a reliable entity and it will elucidate the process of money lending for you. A good credit report enhances your credibility and likewise a bad credit report damages it badly.
To get a good credit report, earning more credit scores is a must. More credit scores can be earned by on-time payments. Credit scores or FICO scores depend upon various factors other than timely payments, though it is the base of earning credit scores. Credit scores earning can depend on amount owed, an opened account’s time span, and credit history. Credit scores vary from bureau to bureau because their evaluation comes as a result of a lengthy and complicated accounting procedure, but generally fall between 350 to 900 points.
Credit reports are very important to create your credibility to help you have a better financial standing. With a positive credit report a lender can be impressed and taking loan becomes easier. A negative credit report can damage your credibility and affect the lender’s confidence in you. You might lose the business too, for which you require a positive credit report. Or you might not be able to purchase a thing that requires a good credit report.
Unfavorable card use, late payments, account collection, account closure and absence of credit references are aspects that damage a credit report. To get a good credit report you should have more credit scores, which range from 300 to 900. Credit scores up to 720 or higher are best to gain favorable interest rates.
You can get as good a credit report as serious you would be. To get an excellent credit report, make it a point not to miss the minutest economical issue as a cell phone and cable bills. These are items that are treated with less care and bills piling up are not given much importance. But you get to know the bad consequences when you pay for the missed payments records.