Credit Rating ?

Ara said:

I'm planning on buying a mustang within the next couple of years. I'm pretty young and don't have any credit cards yet. I do have a debit card that I use regularly but am wondering if I should start building up some credit now so I get a decent APR for when the time comes. Would I even be able to buy a car with no credit rating? I don't want to have to cosign or whatever with one of my parents or anything like that.

If i get a credit card and pay off my debts completely and before the end of the month would I still build credit? Or do you have to pay in installments in order to get some sort of rating?

I really wouldn't even want any credit card otherwise...

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shooterm1 said:

join a Credit Union ... and then you can walk into the dealership Pre-approved & smiling!

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mackey said:

One point that I still want to know is if your credit rating still goes up if you pay it off everytime. Or if you have to leave some sort of balance on it. Say you pay $50 when there is a $200 balance on the card.

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celticstanger said:

Credit score is credit score. Banks don't maintain it. When you go for a loan, it's a part of which "product" the bank will offer you, based upon other factors. The banks product guidelines aren't the same as your credit score. Which product you qualify for may depend upon your score. Also may depend upon whether you're a war vet, how much you wish to borrow, whether you've declared bk in the last 5/10/x years, etc...

Bank products are one thing, credit score is another.

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Mickey21 said:

If you believe that your credit score is static and is the same from one creditor to the next (i.e) bank, than you are mislead. It is almost never the same and isnt the same thing as say asking Equifax, etc for it. That is their score and what they have determined by either being reported to or finding the information for other people.

Credit Reporting agencies dont make credit scores either, well they dont make YOUR credit score I should say, everyone does. Banks do, Credit card companies do, credit reporting agencies do, hell you can make up your own credit score if you wanted to. But how valuable would it really be? That is the question.

Credit reporting agencies can make a score available to say you, me, a retailer, a bank, anyone who wants it really. But that isnt the whole truth. That is the credit score that Equifax has given for instance. And the reason it is even valuable to anyone is because retailers dont have access to most of that information and dont care to do it themselves for instance. Any store is going to pay a fee anually to a reporting agency to get quick access to the information needed in order to make quick decisions like if they want to accept a credit card payment, or debit payment, or grant store credit card, etc.

Banks will usually make their own score after gathering various information and possibly reporting agencies. They want as much information as they can get to make a good lending decision. Now, when a bank asks Equifax for credit information on an individual, they dont ask Equifax for the credit score. They ask for all the information on an individual and then plug it into their scoring system and make their own score. Sure, Equifax's score should be close to the number the bank comes up with, but it doesnt have to be identical and likely wont as the Bank will likely weight their decision differently.

For instance, if I wanted to get a home loan from a bank and my credit score is 800 (fantastic), I dont stand a chance in hell (or at least not a good one) if they have on record that I have defaulted on a home loan from the same bank years earlier. Because that bank not only considers a home loan default a bad sign for a home loan, but that I had already faulted on that bank and not likely to get a second chance.

My point is that everyone maintains a credit score, or should I say creates one at will and believing that a credit score is something that is fairly static and lives somewhere with a company you can check. Fico and other reporting agencies are just a place to get an idea of your score which is usually good enough, just clarifying that your score is dependant on the person you are in the process of asking and can sometimes be very different than what you might think your score is already...

Banks maintain credit scores, Credit card companies maintain credit scores, Credit reporting agencies maintain credit scores, etc. Anyone willing to lend out money or report on the habits of others for those that lend out money...

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CREDIT SCORE NOTES

Think of your credit score like you would a grade in school. A teacher calculates grades by taking scores from tests, homework, attendance and anything else they want to use, weighting each one according to importance in order to come up with a final single number (or letter) score. Your credit score is calculated in a very similar manner. Instead of using the scores from pop quizzes and reports you wrote, it uses the information in your credit report.
The number itself can range from 300 to 900. The formula for exactly how the score is calculated is proprietary information and owned by Fair Isaac. Here, however, is an approximate breakdown of how it is determined:

· 35% of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how timely) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.

· 30% of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25% or less of their limits.

· 15% of the score is based on the length of time you've had credit. The longer you've had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.

· 10% of the score is based on the number of inquiries on your report. If you've applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt (even if you haven't used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past year.

· 10% of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn't have. These actually come more into play if there isn't as much other information on your credit report on which to base the score.

IMPROVING SCORES
Credit scores aren't static numbers. Because they are calculated based on your current credit report, they change every time your credit report changes. While this change may be very slight, it can also be much more dramatic. Here are some things some financial advisers say to do to try to improve your score:

· Review your credit report and correct any errors you find. Getting rid of inaccurate (and bad) information can sometimes improve your score dramatically.

· Advice used to be given to close old and unused credit card accounts in order to reduce your “potential” available credit (which could change your debt ratio after you’ve been approved for a loan). Now, however, the ratio of your debt to your credit limit is more critical, so closing old accounts only raises that ratio – which you don’t want to do. Some people have moved debt from several credit cards to one card and then closed the old accounts. Since creditors look at the debt-to-credit limit ratio this can have a bad affect on your credit score because you have the same amount of debt but less available credit. So don’t close old credit card accounts just because you’re not using them.

· Creditors also now look at the average age of your accounts so, again, keep those old accounts.

· Reduce your balances on credit cards to 75% or less of your available credit (25% is preferable).

· Pay your bills on time. (This is probably the most important of all!)

· Don't let anyone make an inquiry on your credit report unless you absolutely have to. The more inquiries, the lower your score.

· Don’t open new credit card accounts just to increase your available credit in the hopes of raising your score.

Also, remember that some improvements -- such as better efforts at making payments on time -- may take time to impact your score. So, time is also a factor.
If you go to the bank for a loan and are turned down because your score is too low, your would-be lender will get a list of reasons for that low score. You can use that list to try to turn your score around. While nothing is guaranteed, since lenders can also use their own scoring methods, you certainly can't hurt your score by taking any of these steps.
The key is to get credit only when you need it (unless you're trying to establish your first credit), and then use it carefully, make your payments on time, and keep your balances low. Remember not to max-out credit cards.

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