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Understanding Your Credit

Good credit today is an essential part of every day life. We buy so many things on credit from homes to cars, furniture to groceries, gas, clothes, and anything you can think of. That is why you credit is important to you. Information on your credit report can stay on there for up to ten years. Unfortunately, not all of us have the best credit. There are over 2,000 credit bureaus in the United States that are the guardian of you credit. The three major credit bureaus are Experian, Equifax, and TransUnion. They score your credit according to their formulas to develop what is known as Credit Scores. Credit scores usually range from 400 to 850; 400 being lowest score and 850 being the highest score. These credit ratings or Credit scores estimates the ability and willingness to repay a debt or loan.

Can you repair bad credit? Fortunately, you can. We know how to help.

No credit is OK with some lenders. The good news is that you do not have bad credit. You are ahead of the game if you have no credit, now you just have to develop your credit.

If you have bad credit, this may take more time and effort to repair. The first step in repairing your credit is to get in touch with us.

Credit Scores

Along with the credit report, lenders can also buy a credit score based on the information in the report. That score is calculated by a mathematical matrix that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk.

In order for a Credit score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information - and enough recent information - in your report on which to base a score.

About Credit scores
Most credit bureau scores used in the US are produced from computer software. Credit scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

Credit scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a "good" or "bad" customer. And while many lenders use Credit scores to help them make lending decisions, each lender has its own internal rating system, including the level of risk it finds acceptable for their scoring system. There is no single "cutoff score" used by all lenders and there are many additional factors that each lender uses to determine your actual interest rates. However you can now see what interest rates lenders typically offer consumers based on Credit score ranges.

Other Names for Credit Scores
Credit scores have different names at each of the three credit reporting agencies. All of these scores, however, are developed using the same methods, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.

CREDIT REPORTING AGENCY = Credit SCORE
Equifax = BEACON
Experian = Experian/Fair Isaac Risk Model
TransUnion = EMPIRICA

More than one score
In general, when people talk about "your credit score", they're talking about your current Credit score. However, there is no one score used to make decisions about you. This is true because:

Credit bureau scores are not the only scores used.
Many lenders use their own scores, which often will include the Credit score as well as other information about you.
Your score may be different at each of the three main credit reporting agencies.
The Credit score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the three credit reporting agencies are different, it's probably because the information those agencies have on you differs.
Your Credit score changes over time.
As your data changes at the credit reporting agency, so will any new score based on your credit report. So your Credit score from a month ago is probably not the same score a lender would get from the credit reporting agency today.

Credit Scores Truths

The Truth about Credit Scores
Though your credit plays a major role in nearly every major purchase you make, most people don't think about their credit until they need it. And a recent report issued by Congress found most consumers know their credit reports and credit scores are important, but they know less about what factors can affect them. Following are some common credit myths and some facts to set the record straight.

Credit Myth #1 : Checking your own credit can lower your credit score. This is probably one of the most common credit myths out there. When you or someone else accesses your credit file, it is referred to as an inquiry. Your own requests for your credit report, promotional inquiries by credit card companies, and "checkup" inquiries by your existing creditors do not affect your credit rating. An inquiry made by a lender in order to evaluate your loan or credit application may lower your credit rating, however.

Credit Myth #2: You have one credit score. This is another myth that can be confusing for consumers. There are many types of credit scores -- including those developed by the each of the three major credit reporting companies. These scores can vary, because sometimes the information in your credit history varies from one company to another. So it is wise to check your scores first before applying for a loan. The FICO credit score developed by Fair Isaac Corporation is the credit score used most by lenders. It is unique to each individual and takes into account such factors as the length of your credit history, your debt-to-credit ratio and payment history.

Credit Myth #3: The higher your salary, the higher your score. Not true. In fact, your income and net worth are not reported to any credit reporting company. Your score is based largely upon the amount of debt you have and your payment history. The more of your debt you pay off, the likelier it is that you'll see a positive change in your score.

Credit Myth #4: Paying off debt will immediately increase your credit score. This is something many consumers have difficulty understanding. While paying down debt is likely to have a positive impact on your credit score, it won't change your score overnight. Creditors report their customers' payment information to credit reporting companies on a periodic basis, so it may take some time before payments you've made are reflected in your credit score.

Credit Myth #5: Credit card offers can hurt your score. While applying for or opening several credit cards in a short amount of time could have a negative impact on your credit score, the actual offers you receive in the mail have no effect on your score.

Improving Credit Scores

What's in Your Score

Credit Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages below reflect how important each of the categories is in determining your score. These percentages may not be exact but are very close.

Payment History - 35%
Amounts Owed - 30%
Length of Credit History - 15%
Types of Credit Used - 10%
New Credit - 10%

These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

Payment History

Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
Severity of delinquency (how long past due) Amount past due on delinquent accounts or collection items
Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
Number of past due items on file
Number of accounts paid as agreed

Amounts Owed

Amount owing on accounts
Amount owing on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

Time since accounts opened
Time since accounts opened, by specific type of account
Time since account activity

New Credit

Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
Number of recent credit inquiries
Time since recent account opening(s), by type of account
Time since credit inquiry(s)
>Re-establishment of positive credit history following past payment problems

Types of Credit Used

Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

A score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score.
The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
Your Credit score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

What's In Credit Scores

Payment History - 35%
Amounts Owed - 30%
Length of Credit History - 15%
Types of Credit Used - 10%
New Credit - 10%

Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
Severity of delinquency (how long past due) Amount past due on delinquent accounts or collection items
Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
Number of past due items on file
Number of accounts paid as agreed

Amounts Owed

Amount owing on accounts
Amount owing on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

Time since accounts opened
Time since accounts opened, by specific type of account
Time since account activity

New Credit

Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
Number of recent credit inquiries
Time since recent account opening(s), by type of account v
Time since credit inquiry(s)
Re-establishment of positive credit history following past payment problems

Types of Credit Used

Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

A score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score.
The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
Your Credit score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

What's Not In Credit Scores

Credit scores consider a wide range of information on your credit report. However, they do not consider:

Your race, color, religion, national origin, sex and marital status.US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act.
Your age. Credit scores may consider your age, but Credit scores don't.
Your salary, occupation, title, employer, date employed or employment history. Lenders may consider this information, however, as may other types of scores.
Where you live.
Any interest rate being charged on a particular credit card or other account.
Any items reported as child/family support obligations or rental agreements.
Certain types of inquiries (requests for your credit report). The score does not count "consumer-initiated" inquiries - requests you have made for your credit report, in order to check it. It also does not count "promotional inquiries" - requests made by lenders in order to make you a "pre-approved" credit offer - or "administrative inquiries" - requests made by lenders to review your account with them. Requests that are marked as coming from employers are not counted either.
Any information not found in your credit report.
Any information that is not proven to be predictive of future credit performance.

Credit Facts & Fallacies

Fallacy: My score determines whether or not I get credit.
Fact: Lenders use a number of facts to make credit decisions, including your Credit score. Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.

Fallacy: A poor score will haunt me forever.
Fact: Just the opposite is true. A score is a "snapshot" of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.

Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors like gender, race, nationality and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits lenders from considering this type of information when issuing credit. Independent research has been done to make sure that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given score, non-minority and minority applicants are equally likely to pay as agreed.

Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same information lenders already look at - the credit bureau report, credit application and/or your bank file. A score is simply a numeric summary of that information. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.

Fallacy: My score will drop if I apply for new credit.
Fact: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called "inquiries") will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

Credit Reports

Credit reporting agencies maintain files on millions of people. Lenders making credit decisions buy credit reports on their prospects, applicants and customers from the credit reporting agencies.

Your report details your credit history as it has been reported to the credit reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you've paid your bills on time. It tells lenders how much credit you've used and whether you're seeking new sources of credit. It gives lenders a broader view of your credit history than do other data sources, such as a bank or credit union's own customer data.

Creating Your Credit Report
Your credit report does not really exist until you or a lender asks for it. It is then compiled by the credit reporting agency based on the information stored in that agency's file. This information is supplied by lenders, by you and by court records.

Thousands of credit grantors - retail stores, credit card issuers, banks, finance companies, credit unions, etc. - send updates to each of the credit reporting agencies, usually once a month. These updates include information about how their customers use and pay their accounts.

Your credit report reveals many aspects of your borrowing activities. All pieces of information should be considered in relationship to other pieces of information. The ability to quickly, fairly and consistently consider all this information is what makes credit scoring so useful.

Credit Report Mistakes

Some common credit mistakes

Increasing credit card limits. Beware! Credit card companies say they are rewarding your credit history by increasing your credit limit. This leaves you exposed to use your credit more and increase you debt. To refuse this increase of line of credit simply write or call the credit card company and refuse the increase.

Not knowing your interest rates and fees. Be sure you take the time to find out your interest rates and annual fees. (Fact, did you know that about 85% of you minimum monthly payment is interest). If you have high interest rates call the credit institution to see if you qualify for a lower interest rate promotion. If not shop around for a lower rate. You would not want to buy a $300 pair of shoes if you can shop around for the same jeans at another store for $100.

Not taking pride in your credit. Good credit is a valuable negotiation tool when you make large purchases such as a home, car, or home furniture. Challenged credit may slow down or stop you from buying such necessities. Try to budget you short and long term debt so you may increase your Credit scores.

Lengthening installment loans to get lower payments. This payment schedule lowers your installment payments but increases the amount of interest you pay over time. Thus, increasing the amount of overall payments over longer period of time. Try to pay installment loans in as short period of time and pay less interest. Be sure to budget your self accordingly.

Changing your credit card to Gold or Platinum. Most companies charge an annual fee for these higher status cards. Typically, $50 - $100 per year. Try turning these cards down and keep the use of you credit card for basic needs.

Never co-sign. When you co-sign you are not only responsible for your self, you are responsible for the other person you co-signed for. It also increase your income debt ratio which may count against you if you apply for a car or home loan.

Contact your lending institutions if you change your address and/or status. When you get married or divorced make sure you change your legal status. If you move update you information with the creditors and the major credit bureaus.

Minimum Purchase Rule. A lot of stores require a minimum purchase per transaction. This leaves the temptation to spend more money when you do not have to. Avoid putting yourself in this situation and avoid the credit card companies that also enforce these rules.

How Mistakes Are Made

When a credit report contains errors, it is often because the report is incomplete, or contains information about someone else. This typically happens because

The person applied for credit under different names (Robert Smith, Bob Smith, etc.).
Someone made a clerical error in reading or entering name or address information from a hand-written application.
>The person gave an inaccurate Social Security number, or the lender misread it.
Loan or credit card payments were inadvertently applied to the wrong account or the wrong person.

Average Credit Statistics

As a company that helps the nation's largest banks and financial institutions assess credit risk, Credit Score is often asked to describe the credit use of a typical consumer. In researching the answer, we discovered that consumers vary immensely in what types of credit they use and how they use it.

By analyzing a large sample of credit file information on people who recently obtained new credit, Credit Score was able to survey the panorama of credit activity across the U.S. The following statistics reflect the average use of credit by today's consumers.

Number of Credit Obligations
On average, today's consumer has a total of 11 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.). Not included are savings and checking accounts (typically not reported to a credit bureau). Of these 11 credit obligations, 7 are likely to be credit cards and 4 are likely to be installment loans.

Past Payment Performance
On average, today's consumers are paying their bills on time. Fewer than 4 out of 10 have ever been reported as 30 or more days late on a payment. Only 2 out of 10 have ever been 60 or more days overdue on any credit obligation. 85% of all consumers have never had a loan or account that was 90+ days overdue, and less than 10% have ever had a loan or account closed by the lender due to default.

Credit Utilization
About 48% of credit card holders carry a balance of less than $1,000. About 10% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 54% of consumers carry less than $5,000 of debt. This includes all credit cards, lines of credit, and loans-everything but mortgages. Nearly 30% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

Total Available Credit
The typical consumer has access to $12,190 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 8 are using 80% or more of their credit card limit.

Length of Credit History
The average consumer's oldest obligation is 13 years old, indicating that he or she has been managing credit for some time. In fact, we found that 1 out of 5 consumers who recently applied for credit, had credit histories of 20 years or longer. Only 1 in 20 consumers had credit histories shorter than 2 years.

Inquiries
When someone applies for a loan or a new credit card account - in short, any time one applies for credit and a lender requests a copy of the credit report - this request is noted as an "inquiry" in the applicant's credit file. The average consumer has had only one inquiry on his or her accounts within the past year. Fewer than 7% had four or more inquiries resulting from a search for new credit.

Credit Tips

Tips for keeping your credit rating good and protecting your credit rating

Shop for the most competitive rates and annual fees.
Check your monthly statement for any inaccurate information.
Set aside some money for emergencies every paycheck.
Plan ahead and be conservative. Know what your monthly budget is and stick to it.
Pay your entire bill every month or more than the minimum monthly amount.
Pay bills 8 to 12 days before the due date to guarantee prompt payment.
Secure your records, personal information and credit cards in a safe place. Protect this information from being lost or stolen.
Plan your monthly budget or limit and evaluate often.
Beware what you are signing when you apply or open a new credit card or loan.
Pay at least the minimum payment on time, preferably ahead of time.
Avoid balance transfers unless you receive a competitive interest rate for life. You are only prolonging the inevitable.
Check your credit standing at least once a year. Double check the accounts you have are in fact those accounts that you have authorized.

Credit Mistakes

Increasing credit card limits. Beware! Credit card companies say they are rewarding your credit history by increasing your credit limit. This leaves you exposed to use your credit more and increase you debt. To refuse this increase of line of credit simply write or call the credit card company and refuse the increase.

Not knowing your interest rates and fees. Be sure you take the time to find out your interest rates and annual fees. (Fact, did you know that about 85% of you minimum monthly payment is interest). If you have high interest rates call the credit institution to see if you qualify for a lower interest rate promotion. If not shop around for a lower rate. You would not want to buy a $300 pair of shoes if you can shop around for the same jeans at another store for $100.

Not taking pride in your credit. Good credit is a valuable negotiation tool when you make large purchases such as a home, car, or home furniture. Challenged credit may slow down or stop you from buying such necessities. Try to budget you short and long term debt so you may increase your Credit scores.

Lengthening installment loans to get lower payments. This payment schedule lowers your installment payments but increases the amount of interest you pay over time. Thus, increasing the amount of overall payments over longer period of time. Try to pay installment loans in as short period of time and pay less interest. Be sure to budget your self accordingly.

Changing your credit card to Gold or Platinum. Most companies charge an annual fee for these higher status cards. Typically, $50 - $100 per year. Try turning these cards down and keep the use of you credit card for basic needs.

Never co-sign. When you co-sign you are not only responsible for your self, you are responsible for the other person you co-signed for. It also increase your income debt ratio which may count against you if you apply for a car or home loan.

Contact your lending institutions if you change your address and/or status. When you get married or divorced make sure you change your legal status. If you move update you information with the creditors and the major credit bureaus.

Minimum Purchase Rule. A lot of stores require a minimum purchase per transaction. This leaves the temptation to spend more money when you do not have to. Avoid putting yourself in this situation and avoid the credit card companies that also enforce these rules.

How Mistakes Are Made

When a credit report contains errors, it is often because the report is incomplete, or contains information about someone else. This typically happens because

The person applied for credit under different names (Robert Smith, Bob Smith, etc.).
Someone made a clerical error in reading or entering name or address information from a hand-written application.
The person gave an inaccurate Social Security number, or the lender misread it.
Loan or credit card payments were inadvertently applied to the wrong account or the wrong person.

Identity Theft

What is Identity Theft?

According to the FBI, identity theft is one of the fastest-growing crimes in the U.S. Studies show that about 1 in 5 families in the U.S. has been a victim of identity theft. It can occur in a variety of ways, including, stealing your Social Security or credit card numbers and then changing the address on your bills, using your information to impersonate you and then rent or buy products, using your personal information in criminal acts.

Worst of all, you don't even know you have become a victim of this federal crime until months later, when you are turned down unexpectedly for a loan, or get a call from a collection agency about an account you never opened, or worse yet, a call from the police about a crime you didn't commit. Suddenly you are a victim of identity theft.

Once a thief has tampered with your information, it can take months to restore your credit rating. It can also cost you money. That is why it is important to protect yourself before you become a victim.

Protect your mail... Do not leave your mail in your mail box. Thieves steal mail and use it to obtain credit in your name. If necessary, obtain a PO Box to protect your mail.

Fair Credit Reporting Act

One of the most important laws protecting your credit information and identity is the Fair Credit Reporting Act. Designed to promote the accuracy, fairness, and privacy of the information collected and maintained by credit reporting agencies, the FCRA gives you specific rights:

You must be told if your information is used against you. If you are denied credit, employment, or insurance because of information in your report, the denying party must alert you and provide you with the name, address, and phone number of the credit reporting agency used to support the denial.

You have access to your file. Upon request, a credit reporting agency must give you the information in your file and a list of everyone who has requested it within a certain time period. There is no charge if you have been denied credit, employment, or insurance because of items in your file (if you make a request within 60 days). In addition, you're entitled to one free report every 12 months if you are unemployed or on welfare, or have proof that your report is inaccurate.

You can dispute inaccurate information. A credit reporting agency must investigate items that you report as inaccurate. You will receive a full copy of the investigation report. If the dispute is not settled to your satisfaction, you may add a statement to your report.

Inaccurate information must be corrected or deleted. Credit reporting agencies are required to remove or correct inaccurate or unverified information. They are not required to remove accurate data unless it is outdated.

Access to your file is limited. Only people and institutions with needs recognized by the FCRA may legally gain access to your file. This normally includes creditors, government agencies, insurers, employers, landlords, and some businesses. You can remove your name from credit reporting agency lists used for unsolicited credit and insurance offers. Unsolicited offers must include a toll-free phone number you can call to remove yourself from credit reporting agency lists.

Bankruptcy

What does bankruptcy mean?

State of insolvency or consolidation --meaning, you can not pay your debts. There are two kinds of legal bankruptcy under the U.S. law: involuntary, when one or more creditors request to have a debtor judged insolvent by a court; and voluntary, when the debtor brings the petition. In both cases, the goal is a complete and equitable settlement of debts.

The five most well known types of bankruptcy are:

Chapter 7: Also known as liquidation, allows individuals or businesses to give up nonexempt assets and walk away from most debts.

Chapter 9: This section allows municipalities to reorganize debt.

Chapter 11: For individuals and, more commonly, businesses to reorganize debt. Similar to Chapter 13, in that it allows the filer to draft a plan to repay some debt while retaining assets. Chapter 11 has no debt limits, but is much more complicated, and therefore expensive, making it financially feasible mainly for businesses and very wealthy individuals.

Chapter 12: Allows family farmers to reorganize debt. It works very much like Chapter 13, but with higher debt limits.

Chapter 13: For individuals who need to restructure their debt load. Some creditors will be paid back in full with interest, others in full and the remainder will be repaid a percentage of the debt.

Largest Interest Rate Factors

The Three Largest Factors in Your Interest Rate
by David E. Brumbaugh

There are three major factors that affect how much you pay for a loan. Understanding these factors can save you time, money and frustration.

The Federal Reserve Discount Interest Rate. Banks and other lending institutions borrow money from the Federal Reserve Banks. The discount rate is the interest rate a Federal Reserve Bank charges eligible financial institutions to borrow funds on a short-term basis. This rate is set by the boards of directors of the Federal Reserve Banks. The discount rate has a direct effect on the Prime interest rate, which is the interest rate on short-term loans that banks charge their commercial customers with high credit ratings.
Of the three major factors that affect your interest rate, this is the one you have the least amount of control over.
Your FICO score and Credit Report.
There are companies that gather and sell information about information on where you work and live, how you pay your bills and whether you've been sued, arrested or filed for bankruptcy. They are called Consumer Reporting Agencies (CRAs) The most common type of CRA is the credit bureau. Potential lenders will get your credit report from the credit bureau.
The FICO score is a method of determining the likelihood that credit users will pay their bills. It condenses a borrowers credit history into a single number.
You can protect your FICO score and credit report by paying your bills on time and not over-extending yourself. You also have the right to have false information removed from your credit reports.
Lender Business Factors
Banks and other lenders are in business to make a profit. They also exist in a competitive market. Like all businesses, they will balance their profit margin with competitive factors. If they charge too little, based on your credit history and the prime rate, they risk going out of business. If they charge too much, they risk losing you to a competitor. Therefore, in order to get the best deal you can, you should shop around.

Keep one thing in mind when you are shopping around. One of the things that affects your FICO score is the number of times your credit report has been accessed in a certain period of time. Therefore allowing too many potential lenders to run your credit report in a short period of time could be counterproductive. Three or four is typically a safe number. If your request an on line quote from several lenders, they won't typically run your credit report until after they have made their initial quote. (You must explicitly provide a potential lender with permission to run your credit report. For that, they usually need your Social Security Number)

In summary, the three major factors you pay for a loan are the prime rate, your credit history (FICO score) and business conditions such as competition. In order to get the best rate you can, you can do two things, keep up a good credit history by paying your bills on time, and shopping around for the best rate.

Boost Your Credit Scores

How To Boost Your Credit Score
by James H. Dimmitt

Years ago your credit score was a big secret, known only to a select few such as your mortgage and credit card companies. In 2000, Fair, Isaac Co., the major supplier of credit scoring software, announced they would begin sharing credit scores, also known as FICO scores, with consumers.

What is a credit score? A credit score is a tool used by credit grantors to determine your ability to repay your debts. The information in your credit report is compared and evaluated against tens of millions of other consumer credit reports which gives you a credit score or number ranging from 350 (highest credit risk) up to 800 ( lowest credit risk). A higher score means you are less likely to make late payments or default on the credit extended to you. Your credit score will change as the information in your credit report changes over time. Following is a short overview of the five major categories of credit information that are used in determining your credit score and guidelines for scoring higher.

Payment History (35 percent)
Paying your current bills on time is the single most important factor in obtaining a high credit score. This category includes credit cards like Visa and MasterCard, retail accounts, installment loans such as those for a car or education, loans from finance companies, and home mortgages. Also included in this category are matters of public record such as bankruptcies, liens, wage garnishments, and collection accounts. The key to a higher score: Pay your bills on time!
How Much Debt You Carry (30 percent)
This category considers the amount of debt you owe on your various credit accounts. If you have maxed our your available credit, this could indicate that you are overextended financially and wont be able to make your payments on time or repay your debts completely. This category also examines how many of your accounts carry balances and how much money you have already repaid. Closing accounts with a zero balance does not generally improve your score in this area. The key to a higher score: Keep your credit card balances low.
Length Of Established Credit (15 Percent)
The longer you have had credit accounts the higher you will score in this area. The age of your oldest account and the average age of all your accounts are used in determining your score. Old accounts that have Establish good credit and keep accounts active.
Applications For New Credit (10 Percent)
Opening multiple credit accounts within a short period of time represents a greater risk of becoming overextended. Each time you apply for credit an inquiry is made into your credit history and these inquiries show up in your credit report. A high number of credit inquiries will lower your score. Some inquiries are not considered in your score. These include: requests by you for your credit report, inquiries from companies for pre-approved offers or companies that already do business with you, along with inquires from potential employers. Some requests for credit are treated as a single inquiry especially when you are shopping for the best loan rate. The key to a higher score: Only apply for and open new credit accounts when you need them.
Your Credit Mix (10 percent)
This category examines the types of credit accounts you have and how many of each. Can a person have too many accounts? Yes and no. It really depends on whether you have an established credit history or no credit history at all. The key to a higher score: Open credit accounts only if you intend to use them. Don't despair if you have a low score or are just beginning to establish credit. Your credit score will change for better or worse depending on how well you understand and use these five keys to your advantage in planning your financial future.

Bankruptcy Myths

12 Myths About Bankruptcy
By: Bankrate.com

Like most big, bad, scary things, bankruptcy has a reputation based on a few tidbits of truth and lots of embellishment. And like most creepy crawlies, its not nearly as frightening once you know the truth.
With a mind toward declaring the monster, here are a dozen misconceptions about bankruptcy.

1. Everyone will know I've filed for bankruptcy
Unless you're a prominent person or a major corporation and the filing is picked up be the media, the chances are very good that the only people who will know about a filing are your creditors. While its true that bankruptcy is a public legal proceeding, the numbers of people filing are so massive, very few publications have the space, the manpower or the inclination to run all of them.

2. All debts are wiped out in Chapter 7 bankruptcy
You wish. Certain types of debts cannot be erased. They include child support and alimony, student loans and debts incurred as the result of fraud. If you've defrauded someone and a judgment has been made against you, that wont be erased either.

3. Ill lose everything I have
This is the misconception that keeps people who really should file for bankruptcy from doing it, says Chris Viale, chief operating officer of Massachusetts-based Cambridge Credit Counseling. "They think the government will sell everything they have and they'll have to start over in a cardboard box," Viale says. While the bankruptcy laws vary from state to state, every state has exemptions that protect certain kinds of assets, such as your house, your car (up to a certain value), money in qualified retirement plans, household goods and clothing. "For most people, they'll pass through a bankruptcy case and keep everything they have," says John Hargrave, a bankruptcy trustee in New Jersey. If you have a mortgage or a car loan, you can keep those as long as you keep making the payments (like the rest of us)

4. I'll never get credit again
Quite the contrary. It wont be long before you're getting credit card offers again. They'll just be from sub prime lenders that will charge very high interest rates. "There are innumerable companies that will provide credit to you," says California bankruptcy attorney and trustee Howard Ehrenberg. "I don't advise any of my clients to run out and run up the bills again, but if someone does need an automobile, they can go and will be able to get credit. You don't have to go underground or something to get money." However, if you are planning to buy a house or a car, you might want to do that before you file. Those loans will be tough to get, and the higher interest rate on such a large purchase would make a significant impact on your payment. Also if you have a credit card with a zero balance on the day you file for bankruptcy, you dont have to list it as a creditor since you don't owe any money on it. That means you might be able to keep that card even after the bankruptcy.

5. If you're married, both spouses have to file for bankruptcy
Not necessarily. "Its not uncommon for one spouse to have a significant amount of debt in their name only," Hargrave says. However, if spouses have debts they want to discharge that they're both liable for, they should file together. Otherwise, the creditor will simply demand payment for the entire amount from the spouse who didn't file.

6. Its really hard to file for bankruptcy
It's really not. You don't even technically need an attorney. However, its not recommended to go through the procedure without one.

7. Only deadbeats file for bankruptcy
Most people file for bankruptcy after a life-changing experience, such as a divorce, the loss of a job or a serious illness. They've struggled to pay their bills for months and just keep falling further behind.

8. I don't want to include certain creditors in my filing
Because its important to me to pay them back someday and if the debt is discharged, I cant ever repay them. Bless you for even thinking about such a thing. You're no longer obligated to repay them, but you always have that opportunity. If your conscience wont let you sleep nights because you didn't pay your debts, there's nothing in the bankruptcy code that prevents you from doing that once your back on your feet. But bankruptcy is an all-or-nothing deal, so you have to include all your creditors in the petition.

9. Filing for bankruptcy will improve my credit rating
because all those debts will be gone. That sounds like an ad for a bankruptcy lawyer trolling for clients. Filing for bankruptcy is the worst 'negative' you can have on your credit report. Unlike other negatives, which stay on your report for seven years, bankruptcy can be there for 10 years.

10. You can't get rid of back taxes through bankruptcy
Generally speaking, this is true. However, there is such a thing as tax bankruptcy, says tax educator Eva Rosenberg, known on the Web as Tax Mama. To get a shot at it, you have to file all your returns and the taxes owed need to be at least three years old.

11. You can only file for bankruptcy once
he truth is, you can only file for Chapter 7 bankruptcy once every six years, Hargrave says. For Chapter 13 reorganization, you can file more often than that, but you cant have more than one case open at the same time, he says Of course, that doesn't make it a good idea. "Multiple bankruptcies are really bad," Rosenberg says. "Many people get into the habit of once they've done it, it becomes a way of life. This is not good for your karma." Or your credit rating.

12. I can max out all my credit cards
file for bankruptcy, and never pay for the things I bought. That's called fraud, and bankruptcy judges can get really cranky about it. The trustee in your case will review all your purchases right before your filing. He knows what to look for.

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