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Pay Off Your Credit Card Debt Using Line Of Credit

Author : Ask Bill

There are five primary factors that account for the magical credit score which determines your acceptance or rejection for most loans or credit cards. Multiple credit options availed by individuals result in a line of credit, and strongly influences the interest rate or total cost for you to borrow the funds. It is worth noting that all this line of credit and its accompanying history are tracked and reviewed by a credit bureau to calculate their scoring models, though each one is slightly different from the other. A blended overview therefore gives you the most important factors and a rough relative weight in the credit scoring process.

First, your payment history accounts for about 35% percent of your credit score. It’s a vital factor since one with a long history of never missing a payment is likely to continue to be a safe person to lend money to. If you do have negative marks on your credit rating, three factors will determine the size of the deduction to your credit score (1) Time since the Event – how long ago did you miss a payment? If it was a long time ago, and you have a good payment history since that time, it may not affect your score very much. Whereas a recently missed payment may cost more against your credit scoring; (2) Number of Missed Payments – obviously matters. One missed payment in ten years of good history may not matter very much, but the more missed payments in your history, the more risky you are seen to be and this will be reflected in a lower debt score; and (3) How Bad Was the Blunder? – being late or missing one credit card payment could contribute to a small deduction. A bill going to a collection agency upto the biggest black mark of all: bankruptcy, could contribute to a higher deduction.
Second, your current owing constitutes 30% of your credit score. The amount you owe on all possible credit sources (credit cards, auto loans, home loans, your current mortgage and so on) divided by the total of all credit available to you. Knowing this straightforward measurement, in order to improve your score, if you could just pay down any of the loans and avoid temptations, your ratio can be improved and you can get a larger amount of “available credit”. In general people who have a debt scenario near to or at the limit of their credit are much more likely to default and therefore are given a lower credit score. If you are in this situation, credit counseling or to develop a debt management plan, may be something worth considering. By this you would be reversing the trend and lowering your debt ratio.
Third, the longevity of your loans constitutes another 15% of your credit score, with a favorable weight going to those who have had credit for the longest time. The reason behind using time as a credit score factor is because in time it is easier to establish patterns of behavior.
Fourth, when you last applied for credit constitutes 10% of your score. Even if many lenders check your credit score it can have a negative impact on your score. So it may not be advisable to authorize lenders or banks to “pull” your credit score unless you are in fact, seriously shopping for a loan or other credit instrument. However, ordering your own credit score report from one of the three bureaus should not count as a negative on your actual credit score.
Finally, the type of credit you are using constitutes 10% of your score. In short there are two major types of credit: revolving and installment. Installment loans are items like car loans and mortgages. Revolving are credit cards and the like where even if you pay them in full, you still retain the credit to use it again. Generally credit cards are seen as higher quality revolving credit, than department store cards. And mortgages are seen as higher quality than revolving credit, simply because they are more difficult to obtain. A higher score may be given to people with a blend of credit from various sources. This could be seen as a reflection of trust, due to each credit card or loan being seen as an endorsement from a different company.

You can obtain Stand-alone "educational" scores to understand your credit risk level. Also, a score that is completely out of line with your knowledge of your own financial status may indicate something amiss in the underlying credit report. However, we have to keep in mind that scores are in a sense a "moving target," depending on the information in the credit report at the time your file is scored. When you request your "educational" credit score, it should normally come with a notice that tells you that the credit scoring model may be different than the credit score that may be used by lenders; the range of possible scores under the model used; the key factors (limited to four) that adversely affects the credit score, and the date the credit score was created. Please note that credit scores are not available for free. You have to purchase them. This depends mainly on where you live and where you get your score. Educational scores produced by the credit bureaus may also be purchased as a stand-alone product without also buying a credit report.

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Tags:   line of credit, credit rating, credit score

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Submitted : 2010-10-14    Word Count : 911    Times Viewed: 1249