Is Credit on Your Mind?

Credit may be on your mind for a number of different reasons. You may want to raise your credit score, remove damaging credit information, polish up your credit if you're thinking of buying a home, purchase auto insurance, or maybe you've been denied a job because of credit information you weren't aware of. Credit is even a strong consideration for couples thinking of someday getting married and in a peculiar way, is the populist screening tool of choice. If your credit has you on the outside looking in, or if even if you think it's fine, here is some information you should know.

The economic crisis has not only reduced the pool of people that qualify for credit, it has also reduced the availability of credit for people that in fact have excellent credit. How? If you have a tall credit line on a credit card that you keep open just in case you may need it someday, you should check to make sure your tall skyscraper credit line has not become a 5 story walk-up. Banks are abruptly reducing unused portions of your credit limit regardless of your credit history, simply to make funds available in this tight lending market. As more and more banks go bankrupt, over 100 deposit instituions gone in 2009, banks find sources from which to borrow from scarce.

Since credit card companies communicate with one another, as one credit card goes, the others follow. None of them want to be left holding the proverbial bag. If a lender knows that your other cards reduced your credit line, it will do the same because no credit card wants to find itself being your single access to tall credit. So, your excellent FICO score has now become an average FICO score because in reducing your credit limit, the ratio of your balances to credit limit is not as sexy.

The credit bureaus figure your score, in part, by the amount of credit you have available against the amount of credit you actually use. The more credit you use (max-out your card) the lower your credit score will be, regarless if you pay on time. Most people with excellent credit scores above 740, utilize less than 25% of their credit limit month to month.

If you have an outburst of anger and request that they close your card after betraying you, unfortunately this will lower your credit score even more, because you would be removing an open "tradeline" in good standing from the algorithm that the credit bureaus use to score you. Part of the reason your credit (FICO) score was so high was because you received little shiny stars for keeping the account in excellent standing over the years and if you close it, the credit bureaus will essentially strip you of those little shinny stars you earned. So in this instance, you may still have "good credit" from a payment history perspective, but you may no longer have an impressive credit score, which unfortunately would be a result of no fault of your own.

For those of you seeking to repair your credit, you should know that credit repair is free if you do it yourself. You should start by obtaining a free copy of your credit report at http://www.annualcreditreport.com/. They will try to solicite you to obtain your credit (FICO) scores, but I recommend you decline that option because that's not going to help you much and your free report will no longer be so free. There are also a number of different scoring models that are applied so you never know which one a prospective creditor may use. Besides, getting your score is not as important as the information on your credit that creates your score.

If you simply seek to raise your credit score and you already know what your score is, you can start by paying down your credit card balances to below 30% of the limit, if at all possible. You can also open a secured credit card if you need some credit points to qualify for a particular loan program, like an FHA or Ginnie Mae loan. A secured credit card can raise your score 10 to 30 points once the account posts to your credit report, depending on other factors. This may not likely work if you are seeking to bring your score into the high 600's or 700's but if your score is in the 500's, you'll see more movement with a secured card.

Disputing information on your credit for free will involve writting letters to the credit bureaus and your creditors, and being very specific about what you need. Pay close attention to collection accounts, charge-offs, paid balances incorrectly reporting as delinquent, and any other information that you do not recognize. Submitting dispute letters with the bureaus over reported late payments, especially on older accounts, may be fruitful as creditors can often neglect to respond to disputes filed with the credit bureuas. It's also not uncommon that credit information pertaining to someone else gets erroneously plugged onto your credit report, especially if you have a common name like Jose Gonzalez. (Sorry Jose).