It is no secret that having a credit score that is ranked low will create higher interest rates from lenders because you are considered a credit risk. Most people have only a vague understanding of this and are surprised by the often devastating effects this can cause.

For instance, a $200,000 home that is on a 30 year fixed mortgage at 8% interest instead of 6% interest will have a dramatic effect. The 2% higher interest rate due to low credit scores will cost you a total of $96,934.11 over the term of the loan! Consider how many years of work that equates to in paying just that 2% difference.

There are other places in life that a low credit score will actually increase your cost of living on a yearly basis. Not only will you be paying more for your home loan, car loan and credit cards a low credit score often cause you to pay extra in the following areas:

1. AUTO INSURANCE. The vast majority of the 100 largest personal auto insurers use a person’s credit information to underwrite a new client. This snippet is based on a 2001 study that was conducted by Conning & Co; an insurance research and asset management company.
2. HOMEONWNERS INSURANCE. Many insurance companies relate a low credit score to a greater risk of property insurance claims. This often results in a low credit score earning a higher homeowners insurance rate.
3. LIFE and HEALTH INSURANCE. Increased costs are passed onto the insurance company when customers are unable to pay their insurance premiums. The means the insurance company takes a loss when they are left with unpaid medical bills. This to relates to low credit scores as they are the consumers who are more likely to lapse in their premiums; hence the cost of insurance for credit risks are higher.

All of the above mentioned places are often expected areas effected by a low credit score; however, a more shocking and unexpected place effected by a low credit score is in employment. Currently it is estimated that over 40% of employers perform credit checks on their applicants before hiring them. This is based on a 1998 survey conducted by the Society for Human Resource Management.

Certainly, employers often report that they do credit checks simply to verify the information on the application is correct, such as addresses and previous employment. It can more than likely be safely assumed that they are also taking the liberty to see how you have conducted your finances. This is unfortunate since as many as 79% of all credit reports contain errors, according to the Public Research Interest Group, also known as PIRG. Of these 79% of errors, 25% are thought to be serious enough to cause the denial of credit to be extended.

According to Ed Mierzwinski, the director of PIRG’s consumer program; “it’s outrageous that the credit bureaus are claiming their scores are accurate enough to take people’s lives and screw with them like this”. This casts a shadow over the consumer credit report as the consumer begins to realize the full impact of a bad credit report.

J Stromsteen has many years expertise in the finance, real estate, and insurance industry. She contributes to various websites such as First Time Home Buyer where you can find detailed information on getting a First Time Home Buyers Loan .

The concept of credit and credit reports is quite complex, and several factors go into your credit report. This includes outstanding loans, paid loans, credit card accounts, and even your medical history. Companies that prepare credit reports and track consumer credit history are called Consumer Reporting Agencies, or credit bureaus. These bureaus sell credit reports to businesses and lenders, and they also provide them to consumers themselves. You can check your credit report free once a year from the major credit bureaus; Equifax, Trans Union, and Experian. If you utilize each bureau, that means you can request up to three free reports a year. Once you go beyond three, or want to use a credit bureau twice, there is a fee (usually only about nine dollars).

The benefits of reading your credit report are numerous and should be taken advantage of by everyone. On the report, you can see nearly everything about your financial activities. The report lists your bank accounts, accounts with various companies, credit cards, lender accounts, and the names of people who obtained your report in the past year.

Why should you check your credit report? For one, it is good to know where you stand before you try to get a mortgage, new car, or other large purchase. A more important reason to check is to find errors. Keep in mind, this report determines whether or not you can get a house, so it is critical that you know all about it. Humans prepare credit reports, and what inherent quality do people have, human error. Therefore, it is quite likely that a part of the report could be fallacious. It is up to you to correct any mistakes, so make sure to order your report at least three times a year. To correct any mistake, simply call the Consumer Reporting Agency and notify them of the error.

Identity theft has become a major problem lately. Although most people do not think it will happen to them, it most certainly can. By occasionally checking your credit report, you can easily find anything suspicious, and then immediately take appropriate action to rectify the situation. Otherwise, you may not find out for months that you have been a victim, and by that time, you already have a pile of debts to deal with. If you discover you have been a victim of identity theft, you can freeze your reports with all of the major credit bureaus, which protects you from any further damage.

Credit score is the single most important piece of information on the credit report. That one number affects nearly your whole financial life. The way credit bureaus arrive at that number is relatively straightforward. They factor in your payment history, outstanding debt, types of credit you have, the length of time you have had credit, and more. Although each credit bureau has their own specific system, the number usually ranges between 300 and 900.

To improve your credit score, there are many measures you can take. The most important is to pay your bills on time. If you do this one thing, over time, eventually you will achieve a high score. You can also reduce your balances on credit cards and spread your debt around to several different cards. As long as you stick to a solid financial plan, your credit score is guaranteed to consistently rise.

Check your Credit and get your Credit Reports today.

This new, more fair system of credit scoring has been in the works for several years and is designed to “better differentiate “good risk” borrowers from “bad risk” ones and give creditors a more accurate prediction of default. A consumer in good standing could see his or her score go up by as much as 25 points under the new formula.”

Speaking specifically, this means three important things for consumers

1.  Occasional mistakes will be forgiven over time
2.  Shopping around for a loan will hurt you less
3.  Having a few kinds of credit works in your favor

The details behind all three points are well worth reading but in short, this is a welcome and helpful change in light of our presently troubled economy.

Read the full post at CNNMoney.com.

Improving a poor credit score requires a lot more than wishful thinking and a repentant heart. A solid plan and time are necessary to transform an ugly duckling report into a beautiful swan. This article by Darren Yates offers some practical pointers on how tackle this often daunting process. — DH

When you receive your credit report and credit score, the first step is deciding where you stand and where your main problems may lie:

• Have you defaulted on a loan, failed to pay taxes, or recently been reported to a debt collection agency?
• Do you have too much debt?
• Too many unpaid bills?
• Have you recently faced a major financial upset such as a bankruptcy?
• Have you simply not had credit long enough to establish good credit?
• Have you defaulted on a loan, failed to pay taxes, or recently been reported to a collection agency?

The problems that influence your credit problems should dictate how you decide to start to repair your credit score. As you read this article, make a note of those tips that apply to you and from there develop a checklist of things you can do to improve your credit situation.

When you take professional credit help, counselors will commonly work with you to help you develop a personal strategy that directly confronts your financial history and credit problems. This article allows you to develop a similar strategy on your own in your own time and at your own cost.

When developing your action plan, know where most of your credit score is coming from:

1. Credit history (can account for more than a third of your credit score). Whether or not you have been a good credit risk in the past is considered the best indicator of how you will react to debt in the future. For this reason, loan defaults, late payment, bankruptcies, unpaid taxes and other debt responsibilities will count against you the most.You can’t do much about your financial past now, but starting to pay your bills on time - starting today - can help boost your credit score in the future.
2. Current debts (can account for approximately a third of your credit score). If you have lots of current debt, it may indicate that you are stretching yourself thin financially and will have trouble paying back debts in the future. If you have a lot of money owing right now, especially if you’ve borrowed a lot recently, this fact will bring down your credit score. You an boost your credit score by paying down your debts as far as you can.
3. The length of time you’ve had credit (can account for up to 15% of your credit score). If you’ve not had credit accounts for very long, you may not have enough of a history to let lenders know whether you make a good credit risk. Not having had credit for a long time can affect your credit score. You can counter this by keeping your accounts open rather than closing them off as you pay them off.
4. Types of credit you have (can account for about one tenth of your credit score). Lenders like to see a mix of financial responsibilities that you handle well. Having bills that you pay as well as one or two types of loans can actually improve your credit score. Having at least one credit card that you manage well can also help your credit score.

As you can see, it’s only possible to estimate how much a certain area of your credit report affects your credit score. But, keeping these four areas in mind and making sure that each is addressed in your personal plan will go a long way towards making your personal credit repair plan comprehensive enough to boost your credit score effectively.

True or False: The only way to view your credit report is to purchase a copy from one of the three major credit reporting agencies (Equifax, Trans Union, or Experian).

FALSE. The three major credit-reporting agencies, Equifax, Trans Union, and Experian, are each required to provide consumers, upon request, a free copy of their credit report once every 12 months.

You have three options to obtain your free copy:

• Go to AnnualCreditReport.com
• Call (877) 322-8228
• Contact the Federal Trade Commission (FTC) to obtain a copy of the Annual Credit Report Request brochure. You can fill out the form on the back of the brochure and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
  • To request the brochure, you can contact the FTC by phone: at 1-877-FTC-HELP, or download the form at: www.annualcreditreport.com

Well, folks, there you have it. Another money myth dispelled. This happens to be an important money myth because many people never see their credit report for fear of the cost. This allows for errors that could be addressed to never see the light of day thus hurting the consumer for reasons they are not even aware.

So, if you haven’t seen your credit report in eight years or worse still, NEVER, please follow the above steps and order your free credit reports today.

For more information, visit CareOne Credit.

According to a post on The Swamp, credit card interest rates aren’t the only thing Clinton and Obama are proposing pointing out that

Clinton also noted that the Ohio cities of Dayton, Toledo, Akron and Cleveland are among the nation’s top 20 cities for home foreclosures. She has called for a 90-day moratorium on foreclosures and a five-year freeze on adjustable rate mortgages for troubled homeowners.

Clinton used the home foreclosure issue as well as her support for a mandated universal health insurance program to contrast herself with Obama. Obama has called for tougher penalties for predatory home lenders. On health care, he has proposed a plan to mandate coverage for children, which he contends would help make all insurance more affordable.

There are many other economic areas in which the two are promising reformation, but in the short run, if they can get the feds to clamp down on credit card interest rates, that will be a great help for the many American families suffering from our country’s present economic malaise.

Read the full post on The Swamp.

Contrary to what you might have heard, credit counseling probably won’t hurt your credit score. It used to, but about three years ago Fair Isaac discovered that people in debt-repayment plans were no more likely to default or go bankrupt than other consumers.

“Today the FICO score ignores any and all references in a credit report to credit counseling or debt management programs,” Watts said.

Those references to credit counseling, by the way, are typically removed from a credit report after a consumer has successfully completed a repayment plan. That means there’s no lasting reminder on your credit history.

That’s great news for consumers deliberating between debt consolidation vs bankruptcy. The logic here is simple: in a debt consolidation scenario, your debts aren’t being ‘expunged’, so to speak, but rather you are entering into a responsible payment arrangement in good faith with the goal being to repay your debt. Bankruptcy, on the other hand, does relieve you of most of your debts, but it ruins your credit for a long time afterwards and even destroys the good credit that you have earned on your credit reports. Certainly there are times when bankruptcy is the only option but it should always be that - ‘the only option’.

So, count this as a myth dispelled. The final verdict is that while debt consolidation does have an affect on your credit score temporarily, that effect corrects itself over time and, under all circumstances, is a better alternative than bankruptcy.

Read the full post Understanding Your Credit Score at Campus411.org.

According to the website

The Rapid Debt Reducer is a “smart money manager” that identifies areas of unnecessary spending and teaches consumers how to use this money to crush their debts. As strategically paid debts are eliminated, the software shows how to use the freed money to eliminate more debt, repeating the process until the last debt is gone.

While most of us have heard that advice 100 times over on Oprah or other shows, the hard part is actually figuring out the numbers. The Rapid Debt Reducer is a perfect tool that does the ‘figuring out’ for you and allows you to take the most appropriate and effective actions toward your goal of being debt free.

For more information visit The Rapid Debt Reducer website.

On many points, the article makes sense and certainly, for those companies who basically claim to be able to give you a whole new credit ‘identity’, that is no more above board than creating a new identity to escape an arrest warrant. Specifically, the author points the following signs of trouble when dealing with so-called credit repair companiesCompanies that want you to pay for credit repair services before they provide any services.

• Companies that do not tell you your legal rights and what you can do for yourself for free
• Companies that recommend that you not contact a credit reporting company directly
• Companies that suggest that you try to invent a “new” credit identity - and then, a new credit report - by applying for an Employer Identification Number to use instead of your Social Security number
• Companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution

It goes on to say that “you could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.”, all of which is very, very true.

However, as someone who has actually used a credit repair company in the past, I have to say that there are some good ones who play by the rules and get good results. I signed up for Lexington Law in 2003 for about a year and during that time, they got my score from about 430 to 584 which was just good enough for me to be able to reestablish my credit with smaller lines of credit like gas cards, etc. As the article points out, Lexington Law and companies like them do little more than dispute erroneous information on your report, but for the time and process that it involves, I definitely felt it was worth the $30 bucks or so per month (at that time) to have them handle the seemingly endless cycle of disputes and corrections. Since then, my sister and a few friends have done the same with roughly the same results and roughly for the same reasons. They were just trying to get a slightly better score to be able to get a job or get a lower interest rate on a major purchase like a house or a car.

So, I had to weigh in on the whole credit repair issue because I think that with the right company, it can be helpful in raising your score. This, in turn, helps with debt reduction because the higher your score, the lower your interest rates. As for the many dubious companies out there who offer virtual credit MIRACLES, just use your common sense. No company can divorce you entirely from your financial past. Furthermore, the idea is not to vanish leaving your creditors holding the bag, but rather to learn how to become a more fiscally responsible person who is rewarded by sensible interest rates that make repayment of extended credit more manageable.

As with everything else in the money saving, debt reduction game, knowledge is power. So, you are encouraged to be well informed before entering into any arrangement to ‘clean’ your credit and just keep that old adage of ‘if it sounds to good to be true…’ in the back of your mind.

Read the entire article at the Federal Trade Commission.

1. Control your urge to spend
2. Debt consolidation

The two steps are simple enough and we’ve heard them before, but for many people, this is a lesson that has to be drilled in before we finally realized that the inability to do number one gets us in trouble in the first place and the failure to do number two keeps us caught up in the cycle for a lot longer than we need to be.

While the post advocates consolidating debts on a lower APR credit card, I would personally recommend Care One Credit Counseling for a well-managed, fairly automated, non-credit card option for debt consolidation. There are other debt consolidation companies, but in all cases, do read the fine print. Most importantly, when you begin any debt consolidation remember that you are not to incur any new debt. Many people lose sight of this small piece of information but it was unchecked credit card spending that got you in the situation in the first place. Read the full post on Everything Finance.