How Creditors Measure Your Credit Rating
Omar M. Omar
Creditors will measure your credit rating based on the following three main things.
Capacity
Collateral
Character
The three "Cs" show creditors your:
"Capacity" or income to pay the debt
"Collateral" or assets to secure the obligation
"Character" shows your compliance to repay the debt
1. Capacity
The very first question is whether you have sufficient income to repay the debt. Creditors will definitely check to see if your income exceeds your expenses so that you ca comfortably pay the debt. A creditor will then want to know:
Your income - from all sources
Your fixed expenses
Your other debts
The amount remaining from your total net income, after deducting your fixed monthly expenses and other debts, is your capacity. If your net income is $3,000 a month and your total living expenses is $2,500, then your credit capacity is an amount that requires no more than $500 in monthly payments.
If you now pay $400 a month for other credit obligations, then your remaining capacity is a $100 a month, and a creditor should extend you that amount of credit.
There are three techniques that will allow you to maximize your income:
Increase your income
Decrease your expenses easier to do than the first one
Reduce your other debts
2. Collateral
A lender or creditor can be secured or unsecured. Secured lenders hold a lien against specific assets, such as real estate, an automobile, or boat. If you fail to pay, the secured lender can sell the pledged asset to recover debt owed. Secured lenders seldom loan more than the auction value of the collateral.
Secured credit, is an almost guaranteed way to rebuild your credit. Even with poor credit, a lender may advance your credit if you ca secure the credit with a lien against some valuable asset. Many creditors extend credit entirely on the strength of the pledged assets.
Other credit considerations are either ignored or carry comparatively little weight in the credit decision.
What can you use as a collateral to secure your debts and rebuild your credit You may be appreciably wealthier than you think. Add the value of your various assets property that you own and subtract any existing mortgages or lies against those assets. The difference is your equity or net worth in the asset.
This is what you have available to secure a loan. Do not overlook any asset:
Home
Investment real estate
Stocks, bonds, mutual funds,
Automobile
Boats, planes, recreational vehicles
Notes and mortgages due you
Art, jewelry, antiques
Pensions, IRAs, and Keoghs
Royalty income
Income from trusts
You may have other assets to pledge. The point is that collateral gives you a borrowing power approximately equal to your equity in your assets. Regardless of your credit history, if you have collateral worth a solid $100,000, you should be able to borrow close to that amount.
3. Character
Creditors next consider your character. How important this is depends upon the type of credit, and who your creditors are. Asset based lenders rely chiefly on collateral, and they are less concerned with your character than are unsecured creditors who can only rely on your prior reliability for honoring your obligations.
When creditors check your character, they basically look at how you satisfied your past obligations. Meaning they want to know:
How many credit defaults have you had What was the reason for the defaults How recent are they
Do you own your own home
If you rent, for how long have you rented the same apartment or house
Do you have a checking account
Do you have a savings account with regular deposits
Do you have a payroll savings plan at work
Do you have a telephone in your own name
Do you have a criminal record
Have you filed bankruptcy
Positive answers to these nine questions will often offset an otherwise negative credit report. Basically your credit character boils down to your credit history in the past. In the eyes of creditors, if your past credit character is good, there is no reason to believe why your future wont look promising.
About The Author
© Copyright. http://www.deleteuglycredit.com
Omar M. Omar is the owner of http://www.deleteuglycredit.com. The website is dedicated to provide credit consumers with information about their credit right and how to dispute inaccurate information on their credit report. Omar M. Omar is also the author Of "The Credit Repair Bible" book.
omar@deleteuglycredit.com
Do you Know the Benefits of Checking your Credit Report
Mary Arce
Do you know why you should check your credit report
Of course you do, because you have undoubtedly experienced one working in your life!
No matter where you roam, your credit report follows you through life, updating all aspects of your life: your employment, where you live, your opened credit accounts, your closed accounts, your payment history, and even public records on you.
In this country, a good credit history brings you benefits of all kinds--a home mortgage, an apartment lease, an auto loan, or even more credit--with ease.
Like a job resume, your credit file carries a lot of weight, thats why you need to keep an eye on what it says about you.
Many options are cut off to you if you do not look "credit worthy" on paper. A bad report can mean higher rates on loans and insurance. It can also mean whether you get hired or promoted by a growing number of employers who now use them in the evaluation process.
Even if you think you have a good credit standing and you pay your bills on time, you still need to review your credit file for accuracy.
Studies have shown that credit files have an error rate as high as 70%, often the result of simple human or computer error.
Sometimes these errors show you being late in paying your bills when you are not. Your file might even leave out information that could sway a decision in your favor. The most common error is where damaging information of another person, with a similar name or account number, is mixed into your profile.
Monitor your personal credit file so that you are alerted whenever negative or derogatory items are reported against you.
A neglected credit file can lead to some major inconveniences in your life in the future.
You should fix mistakes or remove any incorrect information as soon as you find it. Errors that creep onto your report take time to correct. Catching these mistakes when they occur helps resolve them faster.
When you improve your credit worthiness you can qualify for better rates - which adds up to big savings for you.
Even if you think you have an unblemished past, checking your report lets you know what a future lender or employer will learn about you.
If your credit report is less than perfect now, you can deal with lingering problems effectively, and move towards a better credit standing in the future.
A good credit rating means more money in your pocket and less out the door!
Mary Arce is a consumer advocate and author helping Americans solve their credit problems and save massive amounts of money on mortgage and credit card interest. WHY are some people getting RICH managing their debt Click Here Now ==> http://www.1st-wealth.com
Article is also available by email - send blank email to: ==>mailto: checkreport@1st-wealth.com
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About The Author
Mary Arce is a consumer advocate and author helping Americans solve their credit problems and save massive amounts of money on mortgage and credit card interest.