How do you start to eliminate your debt?
The first step is to assess your current financial situation.
Obtain your credit report. Your credit report contains a thorough
list of your loans and credit card accounts as well as a summary
of the activity on those accounts. Creditors use this information
to predict how you will handle additional lines of credit.
Credit reports contain alot of information about consumers.
They contain your name, Social Security number, date of birth,
current and previous addresses, telephone numbers, credit
payment status, employment information, and marital status.
Your credit report is actually your credit history. Companies
that have granted you credit make regular reports about your
accounts to the three main credit bureaus called "CRAs"
(Credit Reporting Agencies): Equifax, Experian, and Trans
Union. Anyone you have made payments to may report to a CRA
such as landlords, utility companies, and retailers. Information
in your report also includes public records such as civil
judgments, tax liens and bankruptcies.
By using a credit report, the creditors will be able to cross-reference
the information that the consumer provides on their application
with the information that the credit bureau accumulated through
other credit applications.
Following are factors that are of
particular interest to lenders:
Job Stability. How many years have you been employed by the
same employer?
Residence Stability. How many years have you lived at the
same place? Do you own or rent?
Financial Stability. Do you have a checking and savings account?
How many recent inquiries have ther been on these accounts?
Payment Stability. How is your payment history on previous
and existing lines of credit?
Does the applicant have a favorable debt to income ratio?
Does it appear as though they are overextended on credit?
Credit Scoring
Credit scoring is a system creditors use to help determine
whether to give you credit.
Creditors often rely on credit scores to help them determine
the risk of lending to consumers. The information on a consumers
credit file may be used to compile a score that will be used
to determine if a consumer is granted a loan or line of credit.
Information about you and your credit experiences, such as
your bill-paying history, the number and type of accounts
you have, late payments, collection actions, outstanding debt,
and the age of your accounts, is collected from your credit
application and your credit report.
Improving your Score
Weighing the Effects of Credit Information
The impact that credit rating factors can have on evaluation
of credit worthiness is relative to the time frame during
which they are reported and the relative "maturity"
of the consumer's credit history.
Only the creditor can explain what might improve your score
under the particular model used to evaluate your credit application.
Creditors generally evaluate the following information on
your credit report:
Payment History.
Outstanding Debt.
Length of Credit History.
Number of inquiries to your credit report.
The Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA), enforced by the Federal
Trade Commission, is designed to promote accuracy and ensure
the privacy of the information used in consumer reports. Recent
amendments to the Act expand your rights and place additional
requirements on CRAs. Businesses that supply information about
you to CRAs and those that use consumer reports also have
new responsibilities under the law.
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