How to Build Kick-Ass Credit Score

Let’s face it, unless you’ve hit the jackpot or you have patience to save enough money to buy your home or a car, you have no choice but to build kick ass credit score.

Whether you want a credit card or a mortgage, you will need to go through a credit check and general approval process.

If your credit score is about 740 and you do not have a high amount of debt, it is unlikely that you will be denied credit. If you aren’t certain what your credit is, credit scores free and credit history reports can tell you what your rating is.

With that said, life is not a fair game. If you have bad credit — likely due to financial hardship or poor choices you have made in the past — you will pay much more in interest so that same financial institution can offer amazingly low rate to someone with excellent credit score.

No matter how difficult your circumstances are, you can take charge of your financial future by taking very bold steps not only to free yourself from the ball-and-chain of debt but also to build a kick ass credit score – to become a recipient of the benevolence bestowed by the very same financial institution that once punished you for your poor choices of the past.

Tips to Develop Kick Ass Credit Score

I am ceaselessly amazed at the growth of credit card counseling industry in the recent years. Most of these companies claim that they have magic wand to move you from a poor house of credit in matter of days or months. Be ware! Building kick ass credit requires discipline and persistence for a long time. In fact, it requires you to change your financial habits forever.

1.  Old is gold.

In pursuit of getting out of the abyss of debt, it might be satisfying to bid adieu to the credit card you opened right after you received your first paycheck. But more history you have as a borrower or rather a prudent borrower, the better your score should be. Closing an old card not only makes you look like a newer borrower but it also reduces your overall available credit.

Instead of closing your account, cut your credit card in half!

2.  Be a prudent borrower.

A prudent borrower pays off entire credit card balance at the end of the month. You should not have borrowed more than 30% of your available credit limit. Over leveraged credit is a sure sign of the risk for the lending institution, so spend only what you can pay off monthly. Make a habit to treat your credit as your cash so that you won’t spend when you run out of your cash.

3.  Pay on time.

Your credit score is based not only on your credit history but also on how consistently you pay your credit card bill on time. Persistence is the key virtue to build a kick ass credit score.

4.  Check your credit history.

No one has more vested interest in your financial well-being than yourself. Assuming that the world works perfectly can cost you hundreds of dollars due to something fishy on your credit report, such as loan application you never filled out or a magazine subscription you never knew about. You can get one free credit score every year from all three credit card bureaus. Read each report carefully and dispute any errors with these bureaus.

5.  Ask for a credit increase.

After you establish a good credit history, call your creditor or lender and ask for a modest increase in your revolving credit line — one which requires no application process. Assume that you owe $300 on a $1000 credit limit. If you get an increase from $1000 to $1200, you just went from about 33% maxed out to 25% maxed out without spending a nickel more.

I strongly believe that paying interest is a sure path to a poor house. If you make a firm commitment not to pay a dime in interest ever for the hedonistic pleasures, you can build a kick ass credit score no matter how difficult your financial circumstances are today.

source: streetsmartfinance.org

Buying a Car with Bad Credit: Your Options

No matter how many times our mothers warned us to pay our bills in full and on time, some of us just had to find out for ourselves what the repercussions for making late and partial payments would be. Surprisingly, we’ve found that our credit cards weren’t cancelled and no one came knocking on the door to collect that brand new TV we bought and couldn’t afford. Nope, instead they hit us where it hurt the most. They lowered our credit score. And because they were so sneaky about it, we didn’t even realize it was happening until it was too late!

If you’ve got a broken down car, can’t get to work, and can’t get financing on a new car because of bad credit, don’t panic. There’s a way to drive yourself out of this mess, and while it may not be in a new Mercedes-Benz, no need to worry. You’ve still got that fancy TV.

First things first. Go online and get a copy of your credit report. Pay the extra fee to make sure the report includes your credit score. The score is reported by three bureaus, so get your score from all three (Equifax, Transunion, Experian).

Beg the Bank

Understand your credit score and decide the best way to proceed. Most banks won’t lend to people with scores below 640. However, if you’re within a reasonable range of that, many banks will still give you a car loan if you have a good history with that particular bank. If you’ve got $1000 cash, go to the bank where you have your checking account and see if that’ll do for a down payment. Depending on how close you are to 640, sometimes only $500 is enough. If they say no, don’t lose hope. Keep pressing on.

Buy in Cash

Depending on how mechanically inclined you or your friends are, you might want to check out what’s available within your cash range. $1000-2000 can often get you a decent 10 year old vehicle. Unfortunately, most 10 year old vehicles aren’t always in the best mechanical condition, so this is where knowing someone who’s good with engines will be of help.



If you don’t know a mechanic, usually it’ll cost you about $50 to have one accompany you to the dealership to do a thorough inspection on the car you are interested in. However, you should make sure he doesn’t have a connection to the dealership to ensure you’re getting unbiased advice. Older cars come with a lot of problems, so you might want to avoid this option and consider buying from a “Buy-Here-Pay-Here” dealership.

Buy from a “Buy Here Pay Here” Dealership

You know that annoying radio commercial? “Bad credit? No credit? No problem! If you’ve got $500 and job, you can ride away in a new car today!” These guys are what you’d call a “Buy-Here Pay-Here” dealership. “Buy-Here-Pay-Here” dealerships will finance a car purchase and keep the loan in-house, so you’ll owe them money, not some anonymous bank in Phoenix or Cleveland.

These dealerships get a lot of flak because they are in the business of selling loans, not cars. They’re taking chances on people with volatile credit and know that most of their customers will eventually get behind on their loans. Therefore, the cars they sell only have to last as long as it takes for the owner to default on the loan. If you buy from a dealership like this, make sure not to leave your mechanic at home. But not all Buy-Here-Pay-Here dealerships are dangerous. Some of the more reputable ones will offer mechanical warranties, so keep your eye out for those.

In sum, if you’ve got bad credit and you need a reliable way to get around, do your very best to obtain financing from a respectable dealership. However, if you can’t, purchasing from a Buy-Here Pay-Here dealer is a slightly better idea than paying for an old beater in cash, especially if you don’t have any mechanics in the family.

source: howisavemoney.net

Why Your Credit Score Matters

How much do you know about your credit score? That three-digit number is tied inseparably to our financial lives, yet many young adults haven't given it the attention it deserves. Your score can play a role in your ability to rent an apartment, qualify for a loan or even get a job. It can also affect how much you'll pay on interest charges, insurance and even cell phone contracts.

Make building a stellar score a priority while you're young and you could actually save hundreds or thousands of dollars over your lifetime. However, if you don't take your credit seriously, a bad score -- or even a nonexistent score -- will cost you.

Who's keeping score?

Your credit score is basically used to predict the possibility that you won't pay your bills. They are compiled by Fair, Isaac & Co., and are sometimes called FICO scores. The top possible number is 850, but topping 800 is probably unrealistic. A median score usually falls in the 720-to-725 range, meaning half of consumers fall above that point, half below. Even if you haven't given your FICO score much thought, there are plenty of others who have or will, so you'll want to aim for the mid-700s to make the best impression on:

 1. Lenders. This group is the one most people associate with their credit score. Having a good rating can help you qualify for the best rates on a mortgage, car loan, credit card and even a small business loan if you've got that entrepreneurial spirit. A nonexistent score can make it impossible for you to qualify for a loan or credit card at all. (Learn how to overcome this obstacle below.)

2. Insurers. The majority of auto insurance companies use your credit score when determining your rates, and the practice is also common among home insurers. A recent survey by Consumer Reports among eight popular auto insurers found that drivers with top scores could pay up to 31% less on their premiums than if credit scoring wasn't factored in, while those with bad scores would pay as much as 143% more.

3. Landlords. Increasingly, you may need a good credit score to rent an apartment. Landlords view your credit rating as a measure of your responsibility to pay bills on time. If your rating is below par or you don't have a credit score yet, you may have to find a friend or relative to co-sign your lease, or you could be required to pay a higher rent or security deposit.

4. Employers. When you're applying for a job, potential employers can pull your credit report as long as they notify you first. And, in fact, about 35% of them do, according to the Society for Human Resource Management. Why? Bad credit can be a signal of irresponsibility, or employers might be worried you'll spend more time fretting about your financial woes than concentrating on the job.

5. Cell phone carriers. Even cell phone service providers may check your credit before signing you up for a plan. They want to make sure you're responsible and will pay your bill each month. Some utility providers may pull your report as well. If you have credit issues, you may not qualify for the best plan rates, you could be required to pay a deposit, or you could get turned down.

True cost of your score

So, how much does your credit score affect your finances? Say we have two friends, Jim and Mark. Both took steps right out of college to start building a credit report by getting their first credit cards and an auto loan. Jim made all his payments on time, never maxed out his credit cards and often paid more than the minimum required. Mark, however, frequently paid late, overextended his cards and applied for new credit to bail him out of his mismanaged debts.

Now both are ready to buy homes, and they each apply for a $250,000 30-year mortgage. Through Jim's responsibility, he's been able to build a score of 750, qualifying him for a loan with a 6.2% interest rate, according to Fair Isaac, a credit scoring bureau. Mark's score comes in around 650, netting him a rate at 7.3% interest. Jim's monthly mortgage payment is $1,536 while Mark pays $1,718 -- a difference of $182 per month. If they both live in their homes for ten years before selling or refinancing, Mark will pay $21,840 more in monthly payments than his friend. Ouch.

Mark also gets burned on a new auto loan -- paying $1,332 more over three years on a $20,000 loan than Jim. Plus, Mark probably paid much more for his car insurance than Jim.

How to get started

Even if you don't plan on applying for a loan, or getting a new apartment or a new insurance policy anytime soon, it's a good idea to start building your credit score now so it's there when you need it.

When you're starting from scratch, a good place to begin is in college where lenders hand out credit cards like candy. But don't rush to indulge. Janet Bodnar, Kiplinger.com's Money-Smart Kids columnist, advises students to get just one card their junior or senior year, use it occasionally and pay off the balance each month. It's much easier to qualify for a credit card while you're in school than after you graduate (lenders figure that Mom and Dad will bail you out while you're in college if you can't pay your bill).

If you're already out of school, or you don't trust yourself with a full-fledged credit card yet, a secured card will help you get off on the right foot. This card allows you to make a deposit with a lender (such as your bank or credit union), and the amount usually becomes your credit limit. The issuer takes on zero risk because if you don't pay on time, it can dip into your account to cover the bill. Most issuers require a deposit of $300 to $5,000. You build a history just as fast with a secured card as with a regular one. And after making payments on time for a year with a secured card, you should have an adequate history to switch to an unsecured card and get your deposit back.

A new scoring system from FICO may soon help young adults trying to build a credit history. It is based on alternative data such as whether you pay your electric bill on time and maintain a clean checking account (learn more.) So you'd do well to keep all areas of your finances in tip-top shape.

Boost your score

Knowing what goes into your credit score can help you manage your debts well. Here's how to make the best impression on your credit history:

• Pay on time. 35% of your score depends on your payment history.
  
  
• Don't max out your cards. 30% of your score is based on how much you owe. You want to keep your "credit utilization" ratio -- the percentage of your credit limit that you've actually used -- no higher than 30% of your available credit limit.
  
  
• Start while you're young. 15% depends on the average age of your accounts.
  
  
• Avoid opening several accounts at once. Not only will this lower the average age of your accounts, but lenders will worry that you might go on a borrowing binge. 10% of your score depends on new credit.
  
  
• Get the right kind of credit. This accounts for the final 10% of your score. Your experience with revolving credit, such as credit cards, on which you control how much you charge and pay off each month, carries more weight than installment debt, such as car loans and mortgages, with fixed payments. But don't simply stock up on a pocketful of Visas -- lenders like to see that your money skills are well rounded.
  
  source: kiplinger.com