Credit scores

Credit Scores

Credit scores determine if someone gets approved or
declined on any type of credit.

In commercial terms, credit scores are defined as
numerical expression based on a statistical analysis
of a person’s credit files, generated by a
mathematical algorithm.

To be more precise, credit scores are determined on
the basis of the certain amount of credit a person has
taken.

His credit statements are compared with the accounts
of other people applying for credit to the same
financial body.

Bankers and credit card companies are termed as
lenders who use credit scores to evaluate the
potential risk while lending money to the consumers
and to alleviate losses due to bad debt.

Credit scores are being used by the lenders to
determine who qualifies for a loan and who does not,
at what interest rate, and what credit limits they
could lend the money to the person and in what time
and what interest they could get their refund back.

There are lenders who sometimes build or create
regression models that predict the amount of bad debt
a customer may incur.

But it is really difficult and hard to predict about
the debt return still it is done to have an idea in
the future if this person is a high risk or worthy of
future credits.

Lenders usually look for higher number as we have seen
that people with highest score get the lowest rate of
interest.

Different countries use different techniques to make
credit scores and similarity is found between Canada
and USA. But the system is said to be better in
Australia.

Credit Scorecards

Credit scorecards are created with the help of
statistics. First, all past loan applications of
interested consumers are collected.

Then these applications are divided into two essential
categories.

The first one deals with the people who repaid their
loans in due time without much hassle.

The second one deals with those of the defaulted.

It is mandatory to compare the first group with the
second one to prepare an appropriate scorecard.

Credit scorecards provide a accurate measurement of
the likelihood that a customer will repay the credit
amount back in the allowed amount of time.

Logit or probit are estimation techniques which are
statistically used to predict the probability of
default of new clients based on this historical data
base.

The default probabilities are then compared to a
« credit score. » This score will rank the potential
client by their height of risk without explicitly
identifying their probability of default.

It is to be noted that the procedure of credit scoring
was not always fit enough and it did have drawbacks.
Then newer and improved techniques were applied to
maintain this method of comparing credits.

These measures are: hazard rate modeling, reduced form
credit models, or logistic regression.

The essential differences from credit scoring involve
both the data base and the ability to calculate the
financial value of a loan, given its risk from a
credit perspective.

The data base includes all of the available
observations on both defaulted and non-defaulted
clients. This makes it much easier to see the effects
of macro-economic factors like stock prices, auto
prices, interest rates, and home values on the default
rates of retail loans secured by automobiles or homes.

Credit report

It’s really awesome to buy products without clearing
the full bill and keeping the transactions on the way.

But one must remember that while doing transactions in
credit they must keep an eye on the credit facilities
and must have their credit reports of the last
transactions.

Credit reports tell us about the person’s details,
address, contact number, personal details, where
he/she works, social security number, and marital
status, descriptions about previous jobs, recent
positioning, income, debt, and length of employment
and also it contains other factual history of your
credit experience with the credit granter.

But on credit reports no records of arrest, specific
purchase, and medical records are kept. Credit report
are being sold out by the credit reporting agencies
where you are being evaluated for business, insurance,
employment and other purpose allowed by federal laws.

People can get their credit reports only by calling
the agency, there are three credit bureaus suppliers
Experian, Equifax, and Trans Union.

It is very essential to update your credit profiles.
If it is not updated then the agency couldn’t provide
the latest information to the bankers about your
positioning and it is duly needed to maintain
accuracy.

If there are errors in your credit repot one can
straighten them out by going to the agency that
reported the bad report and the agency is bound to fix
the problem, as long as the debt has been cleared.

Always have your paid statements ready as well as your
returned checks or credit card information to verify
any payment made.

Credit Repair Tips

In some cases, bad credit is a result of irresponsible money management. But it often occurs because of unexpected financial hardship. One day you might have all of your bills current, and the next you could become disabled or lose your job. And if you fall behind on your debts, it will wreak havoc on your credit rating.

Credit repair agencies claim that they can remove bad entries from your credit report. But did you know that you can often have them removed yourself at a much lower cost? There are two methods by which you may be able to get negative entries removed from your report.

Option #1: File a Dispute with the Credit Bureaus

The Fair Credit Reporting Act (FCRA) requires credit bureaus to investigate any item on your credit report that you dispute. If the information is found to be false, inaccurate or unverifiable, it must be corrected or removed from your report. The bureaus have 30 days from the time they receive notice of the dispute to complete their investigation.

If there is any inaccurate information on your credit report, a dispute is certainly in order. But some people have had luck disputing items that were in fact accurate, including judgments, collections accounts and repossessions. If such items are not verified by the creditor (or the court in the case of judgments) within the time limit for investigation, they must be removed.

If you decide to dispute a legitimate entry, simply write a letter to each of the credit bureaus stating that you dispute that entry. No explanation is required. But keep in mind that if the entry is verified, it will remain on your report. And if the creditor verifies the information after the 30-day time limit, the credit bureau may reinstate the entry as long as they notify you at least 5 days before doing so.

Option #2: Negotiate with Creditors

Dealing with creditors can be intimidating, especially if you’re not on good terms with them. But speaking to your creditors directly may help you get negative information removed from your credit report.

If you only have a late payment or two on your account, a creditor might be willing to remove the derogatory information once you’ve resumed a regular payment schedule. If you’ve experienced repossession or had an account turned over to collections, payment in full might persuade them to remove the negative entry. It sounds like a long shot, but you never know until you ask. Requests to remove late payment information may be made after you’ve brought you account current. But if you’re hoping for removal of a repossession or collection action, it’s best to negotiate a deal before you pay anything.

If You Can’t Get the Bad Entries Removed

There is no guarantee that disputing information on your credit report or negotiating with creditors will get negative items removed from your record. If it doesn’t, the best thing you can do is try to build up some positive information on your report.

The first thing you need to do when trying to rebuild good credit is bring past due accounts current. Try to work out a deal with your creditors to accomplish this, or talk to a credit counseling agency. But don’t miss payments on current accounts to put money toward those that are past due. If it comes down to paying one or the other, keep the current account current.

Once you’ve brought all of your accounts current, put a priority on keeping them that way. Making your payments on schedule will raise your credit score, and with the passage of time, the good entries may outweigh the bad.

Credit reference

Credit is granted when an organization or an
individual makes money enough to give its customers
some of it to borrow. There are mainly two kinds of
credit-

a) Home loans, or mortgages, and personal or shop
loans are linked to a specific item or items and

b) Revolving credit on payment cards can give an
individual access to a fixed amount of money that he
or she can spend as he or she wishes, in a wide range
of retailers and other outlets.

Credit reference can also be referred to as credit
history. It is handy information, which holds the
creditors personal information, be it of a person or
an institution or an organization.

It provides dealers an account of credit applicants’
past credential dealings in order to make a more
accurate decision.

Credit rating agencies essentially play this role in
while working with consumer credit. Potential lenders,
that is individuals or organizations or institutions
that are interested in investing their money, consult
with established credit rating about appropriate
applicants.

These initial talks are necessary for it decides
whether the said person, organization or institution
is reliable enough to be granted credits.

Credit references helps to assess whether if an
applicant’s credit history indicates proper, timely
payments on all outstanding obligations.

A lender would be able to judge all by himself whether
that the applicant will make timely payments on the
requested loan or not.

Credit references also indicate the applicant’s bank
account, what type of account it is, mentioning at the
same time about overdrafts.

Credit Rating Agencies

Nowadays a country’s financial growth depends on how
much its citizens invest and its annual expenditure
and profit.

Giving credit has always been in fashion, for it
brings in good money to the potential lenders.

In the same way it allows consumers to have means to
participate largely into the country’s financial
benefits in this enormous money play discipline in of
utmost importance.

Credit bureaus maintain credit records and likewise
Credit rating agencies determine the appropriate rates
according to which consumers and lenders work out
their dealings.

Credit rates provided by credit rating agencies
function as guidelines in such cases. The issuers are
companies, cities, non-profit organizations, or
national governments issuing debt-like securities that
can be traded on a secondary market.

It is obvious that credit rates are never the same for
everyone. They are set on the basis of risk-based
pricing. Risk-based pricing is a way of price
differentiation based on the different expected costs
of different borrowers, as set out in their credit
rating.

There are more than hundred credit rating agencies
around the world. The top listed credit rating
agencies that assign credit ratings for corporations
include the following:

* A. M. Best (U.S.)

* Baycorp Advantage (Australia)

* Dominion Bond Rating Service (Canada)

* Fitch Ratings (U.S.)

* Moody’s (U.S.)

* Standard & Poor’s (U.S.)

* Pacific Credit Rating (Peru)

* Egan-Jones Ratings Company (U.S.)

Credit rating agencies are not spared from criticism,
for their inability to downgrade countries readily
enough and also supprting unscrupulous company
management.

Credit history

Credit according to the financial experts, is a
contractual agreement in which a borrower receives
something of value at a particular point of time and
agrees to repay the lender at some later date.

Credit is believed to determine the borrowing capacity
of an individual or company. Credit history is the
record of someone or their organization’s financial
dealings based on credit.

It is an account of their past borrowing and repaying.
It also contains facts about late payments and
bankruptcy, if there is any.

A credit reputation can also be used as an alternative
to credit history. Credit history is generally
maintained by credit bureaus set up in several
countries.

When a customer interested in obtaining credit applies
for credit from a bank, whether it is a nationalized
bank or private bank, his personal inputs are
forwarded to these credit bureaus.

From time to time these bureaus updates the status of
the credit holders’ accounts, cross checks their
personal information, like their address or contact
numbers and records even the change of names, if there
is any.

All these detailed information are required to
understand the applicant’s credit worthiness. Moreover
these records are maintained to keep tract of the
person’s whereabouts and also to make sure that he
pays his debts in the stipulated period as mentions in
the credit related agreements.

Credits and associated financial dealings help in
boosting a country’s financial growth. Credit history
further helps to determine annual percentage rate of a
country’s financial dealings.

Although it’s hard to keep your credit record clean,
in today’s world it is almost mandatory.

How to Create a Family Budget

For singles, creating a budget is relatively easy. They tend to have a good handle on how much money they have coming in, and when tracking expenses, they only have their own to think about. But creating a family budget is a whole new ball game.

Most families have multiple sources of income. And when there are multiple spenders, that makes things much more confusing. This is one of the main reasons that families lack a formal budget. But having a budget and sticking to it can greatly improve a family’s financial outlook.

Making a family budget may be tricky, but it can be done. Here’s how.

1. Take inventory of all income. If a certain source of income fluctuates from month to month, use the lowest amount or average it out.
2. Keep track of all expenses for a month or so. Keep all of your receipts, and ask all family members to turn theirs in to you each day.
3. Add up your monthly expenses. Be sure to include bills, debt payments, groceries, and everyday expenses such as lunch money and transportation costs.
4. Get the family together and discuss ways you can trim the budget. Getting input from other family members will help you determine which expenses are necessary and which ones could be cut down or eliminated. Maybe you or your spouse could start taking lunch to work instead of eating out, or maybe the kids can drop an extracurricular activity.
5. In addition to individual expenses, discuss how you can cut down on the electric bill, groceries and other necessary family expenses. Consider such things as carpooling or taking public transportation, buying more generic foods and adjusting the thermostat.
6. Estimate how much you can save on regular expenses, and cut the completely unnecessary items out of the budget. Then refigure it and see where you stand.
7. If you end up with a surplus, allocate a portion of it to savings. If you’re in the red, go back and rework the budget until you have more income than expenses.

Being Realistic

One reason that family budgets often fail is because they’re just not realistic. It’s great to cut down on expenses, but sometimes we tend to go too far. For example, cutting entertainment out of the budget completely might look good on paper, but we all need a little diversion every now and then.

Instead of cutting such things out of the budget completely, consider finding ways to lower the cost. Going back to the entertainment example, maybe you’ve been going to dinner and a movie as a family twice a month. But eating in and renting a new release would be much cheaper, and you would still get to spend quality time together.

Individual expenses can also be tricky. This can be resolved by allocating a certain amount for each family member to spend each week. If someone spends his entire amount before the week is up, reevaluate his expenses and adjust if necessary.

Creating a family budget can help keep spending under control, leaving more money to pay down debts and save for future goals. But in order to succeed, close monitoring is essential. Your efforts will be rewarded, however, with less financial stress and more money in the long run.

Consumer credit

The most fascinating thing about Credit is it allows
consumers to finance transactions without having to
pay the full cost of the total billing at the time of
the transaction.

It is helpful because the consumers could buy the
product in credit form and could pay it according to
the deal. The most common means of consumer credit is
a credit card account issued by a bank.

Now a days mostly each and every financial institution
have given this opportunity to the customers.
Merchants may also provide financing for products
which they sell.

Banks may directly finance purchases through loans and
mortgages in that case small sources business persons
are getting real help for outsourcing their product
and not wasting their total gross amount.

It is well protected in federal and state statutory
laws. These laws protect consumers and provide
guidelines for the credit industry.

Different countries have issued different rules to
maintain various statutes regulating consumer credit.

The Uniform Consumer Credit Code) has been adopted in
eleven states and Guam. Its purpose is to protect
consumers obtaining credit to finance their
transactions, so that while availing this credit
system adequate credit is provided to the consumers,
and also to govern the credit industry in general good
condition.

Laws are there in the name of Consumer Credit
Protection Act which regulates the consumer credit
industry, it helps the creditors to disclose credit
terms to consumers so that there might not be any
hidden pros and cones.

The Consumer Credit Protection Act also protects
consumers from big bite loans, restricts the lucrative
use of wages, and established the National Commission
on Consumer Finance to investigate the consumer
finance industry so that it can run credits smoothly.

Tips to Check and Improve Your Credit Score

You’re in your home watching your favorite television show. Since you’re enjoying it too much, you run out of snacks. So you put on a jacket, and scramble your way outdoors to go to the nearest store. When suddenly you stop and walk your way back towards your house. What could be the reason behind this?

Well, it’s quite simple. You can’t proceed to the store because you haven’t paid your debt. If you’re always like this, there is a big chance that you can’t handle bigger debts. And with the overabundance of people incurring debts everyday, they are looking for quick and easy ways to improve their credit scores.

Credit scores helps in building a good credit history, so if you constantly leave your bills unpaid, and don’t take your credit transactions seriously, your credit score will eventually go down.

If you have credit, you must be responsible enough to repay what you owe, otherwise this will reflect in your credit report. Suppose now you have a low credit score; its time that you start improving or cleaning it up little by little. How will you do it? Consider the following tips:

1. Review your credit report on an annual basis. There are three credit-reporting agencies, so you must get a copy of your credit report from each agency. Check for any mistakes, and if you do find some, you must have it corrected. This will usually take about three months before the change can take effect. If you are planning to apply for a loan, you must do this ahead of time.

2. Start paying all your dues on time, and if you can afford it, always pay the bill in full. Don’t leave balances because this will greatly help in improving your score.

3. If you have a credit card, you may want to start paying your remaining balance until you’ve reached about 25% of the credit limit.

4. Credit insuring is important if you want to purchase a car. Having a car nowadays is important especially if you need to travel every now and then. Car dealers can help in arranging your finances. This is called repossession insurance. Though it can be expensive, it is one way to improve your credit score and secure vehicle loan.

5. Start applying for account overdraft if you have a checking account. This means that you can issue a check more than what you actually have in your checking account without getting extra charges. The excess amount will be reflected in your monthly bill. Banks report to credit agencies, so make sure that you pay your debt on time to have your credit score improved.

6. Join clubs which charges annual fees and those that report to credit bureaus. Just make sure that you meet all the club’s requirements. Some clubs arrange for financing, and if you receive credit, pay your debt on time. This is also one way to improve your credit score.

If you follow the tips mentioned, you’re on your way to repairing your credit report. Your credit score is your only way to getting finance on credit, so make sure that once you’ve improved it, stay on the right track and avoid getting bad debt again.

Maintaining a high credit score entails great responsibility and discipline. Start now, while you still have room for improvement.