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With the recent release of the FICO 08 by Fair Isaac, consumers seem to be unsure as to how this new credit system and modified credit scoring system is going to affect their credit scores. FICO 08, which replaces its predecessor, the traditional FICO, is all set to change the credit scoring system. While the new method of credit scoring has brought with certain boons for consumers, there are also a few hazards attached to the new system.

FICO 08Credit Score System For Credit Cards

With the new FICO 08, if your credit card issuer slashes your credit card balance, this could affect your credit score. Recently it has become a norm with credit card issuers to slash balances of accounts that are not being used and are not profit generating.  This in turn reduces the difference between your overall limit and the amount of credit used. It is a known fact that the higher the difference between the two, the better the impact on your credit scoring, and the smaller the difference the worse the impact. FICO experts are of the opinion that the reduction of balance of one single account will not hamper your credit score, however, if several accounts start to get reduced, then that may be a cause of worry, as you may see a decline in your credit score.

Benefits of New Credit Rating System For Consumers

While the new FICO 08 credit scoring system is set to usher in new changes to credit scoring, there are a few victories for the consumers as well:

• Accounts In Collections: The new credit scoring system is set to be less harsh on consumers who have small unpaid amounts which are less than $100. While the previous FICO credit system was fairly harsh on these small collection amounts like unpaid parking tickets, small medical bills or library fines etc., the new scoring system introduced by Fair Isaac is set to make life a little easier for consumers.

• Major Credit Issues: FICO 08 apparently is not as penalising as it’s predecessor, when it comes down to consumers having repossession or charge-off against their name. The only criteria however is that all the current accounts of the clients should be up to date and in good standing.

• Authorised-Users: As you may already know, adding an authorised user to an individual’s credit card is a widely accepted way of being able to improve the other person’s credit score. While this has been widely exploited by credit repair companies, Fair Isaac have decided that that is no longer going to be the norm. While speculation still exists as to the outcome, it is believed that only a limited number of authorized users will be allowed on an account and after that point any further users will be disregarded.

There are some of the changes that consumers can expect with the introduction of the new FICO 08 credit scoring system by Fair Isaac.  While the three credit bureaus are introducing the new credit scoring system differently it will interesting to see as to what are the changes of the new credit scoring system on individual credit scores.

References:

1. New threads to credit scores – MSN Money
2. FICO credit system to change in 2009 – Credit.com
3. Bureaus Roll Out New Credit Score Formula for 2009 – All Financial Matters

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Consumers are of the opinion that once that after filing bankruptcy, it spells the end of the road for them. This however is not true. There is life after bankruptcy and it can be full of the same if not similar opportunities prior to filing for bankruptcy. [...]

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If you thought that your credit score only affected your borrowing capacity and future credit contracts, then it might be time to rethink that misconception. In today’s fast changing financial market structure, insurance companies too are keeping an eye on your credit score as highlighted when we discussed auto insurance. Simply put, the home insurance premiums that you pay could be directly related to your credit score or credit report.

Consumer Ratings For Home Owners Insurance

Although it is extremely controversial, but an increasing number of home insurance companies are taking individual credit scores into consideration before deciding on whether or not to issue a home insurance policy contract in the first place. In addition, your home owners insurance premiums are indirectly proportional to your credit score. Stated plainly, the lower your FICO score the higher the homeowner’s insurance premiums and vice versa. In addition to this, factors such as age of the property, prior losses and type of construction are also taken into account.

In order to create and factor in credit score to suit the home insurance ratings, one of the following is used

• Fair, Isaacs & Co, Three digit credit score   OR
• A home insurance score is ordered via FICO.  OR
• Homeowner’s Insurance companies infuse their own underwriting criteria into the evaluation and take into account the FICO credit or insurance score.

It might be noteworthy that unlike your regular FICO score which is concerned with how much of new credit you can take on, home insurance policy scores on the other hand are concerned with your debt management capacity. Hence it is concerned with the time factor of how long you have been successfully managing your debt.

Home Insure Options : What Can Consumers Do

It should be mentioned that once your home insure application is declined, it does not mean that it is the end of the road. There are home insurance options available to consumers in these circumstances.  A few possible alternatives are listed below:

• Obtain Your Credit Report: Get your credit report and check for any credit report errors that might have crept in. If you find these take them up with the appropriate credit bureau and re-approach your home insurance company.
• Ask for Full Disclosure: Speak to your home insurance policy agent and ask them to advise you as to which tier you fall under. This will give you a fair idea of the kind of premium you might have to pay. An agent is required to give you full disclosure if asked these questions.
• Shop Around: Not all homeowner’s insurance companies out there use the credit report scoring system. There are companies which do not pay attention to your credit report when deciding your home insurance premiums. It is about finding the right home insurance policy company to suit your needs.
• Pay Down Short Term Credit: If you find yourself in a situation where you have no option then it might be a good idea to start paying off your credit card debt and small and short term loans to boost your credit score. Once you have done this reapproach your home insurance company and request them to reassess your home insurance application.

Homeowner’s insurance is extremely important in this day and age. Hence it is extremely essential that consumers make the right choice with their home insurance policy. Bear in mind that not all home insurance companies consider credit scores while deciding on premiums or applications. It is all about finding the right insurer to fit your needs.

References:

1. Guess Who’s Looking at Your Credit Report – Smart Money, The Wall Street Journal
2. How credit scores affect insurance rates – Bankrate

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Paying off your credit card debt soon is likely to have a big impact on your credit report. This statement holds true especially in this economic climate where lenders prefer to grant new credit to consumers who have minimum credit and good repayment capacity. Hence paying off your credit card debt might be a good credit card debt solution before applying for a new credit facility like a home loan or a vehicle loan.

Pay Off Credit Card Debts – Advantages

Paying off credit card debts definitely has its advantages, all of which together can contribute greatly towards improving your credit report

• Decreased Credit Card Debt:The biggest and most obvious advantage of paying off credit card debts is of course that it reduces your credit card debt  and reduced debt is a financial situation everyone wants to be in.
• Increase Your Spending Money: Making more credit card repayments, means only one thing, you have lesser money in your hand to spend. Paying off your credit card debt will ensure that your spending money in hand increases.
• Impetus To Your Credit Score: The lesser the debt you have the better the chances of improving your credit report. As you are aware, paying off your credit card debt proves that you have good payment history and also reduces your overall debt. This can greatly help boost your credit score.
• Better Serviceability For Future Loans: Paying off your credit card debt, will ensure that your serviceability (the ability to obtain credit) on future credit contracts improves. Lenders look at applicants with minimal debt favourably and hold clients with prompt and good repayment history in high regard.
• No More Interest Payments: When you buy something on your credit card, you are liable for an interest payment on the value of the item purchase. Regular credit card repayments is a good credit card debt solution and this will mean that you will now be able to purchase goods without having to pay extra in the form of interest.
• Surplus Funds For Investments: While a credit card account can be helpful to build good credit, by paying off credit card debts, you are not only increasing your spending money but will also have surplus funds to contribute towards investment accounts or retirement savings accounts.

Credit Card Debt Solution How Tos
Paying off credit card debts is a great solution and some of these credit card debt tips might help to get you started on your mission to pay off credit card debts.

1. Monitor your spending habits and ensure that you are only spending on what you need.
2. Switch to using more cash. Most consumers find it rather difficult to carry cash around, but when you are trying to pay off your credit card debt this can really help.
3. Calculate your payments and always ensure that you have sufficient monies in your account to cover the payment.
4. Create a budget for yourself and use any surplus funds that you might have towards paying off your credit card.
5. Freeze your credit cards. This means literally freeze them. Do not use your cards if you are trying to pay them off. You might even want to cut up your credit cards to ensure that you do not use them.
6. Try and consolidate your credit cards. Instead of having numerous credit cards with small balances, it might be better to just have one credit card with a larger balance. This will help you keep track of your payments and in turn you will be making one payment instead of many. This will also be particularly helpful when you are making increased contributions.

Based on the above facts consumers can conclude that paying off your credit card debt not only has a positive impact on your credit score but also means that you can use those surplus funds towards obtaining more desirable credit e.g. a mortgage. Consumers can also use these surplus funds towards retirement contributions or even towards starting a savings pattern or reducing other debt you might have.

Reference:

1. Tips for Paying Off Credit Card Debt – Credit.com

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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).

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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:

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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.

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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.

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There is a wealth of information on the internet about rebuilding your credit report and credit score. However most of them are pretty much saying the same thing and only a few provide really helpful information to help rebuild your credit report. Rebuilding your credit report might seem like a complicated task, so here are a few simple tips to help you along the process.

Where to Begin [...]

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Rebuilding credit report a difficult but possible task

Internet is replete with information about rebuilding credit report and credit score, but the pity is that most of them are almost the same in a different way, and only few have something for you that can be really helpful to rebuild your credit report. If you are also looking for rebuilding your credit report, you must keep this fact in mind that establishing good credit record is easier than rebuilding it. But it is possible and you can achieve the desired results with better planning and thorough follow up.

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