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Being denied for a new credit card is not a good feeling to say the least. More than likely if you’re like the rest of us, you’ll probably be looking for somewhere to lay the blame for that nasty feeling of rejection. You’re first reaction may be to blame your credit score, but not so fast! Banks and lenders definitely weigh a credit score heavily in their decision as to whether or not to grant a credit line but the scrutiny doesn’t stop there.

 

In recent years it has become fairly difficult to become approved for a credit card especially cards with reasonable terms. If you already know that you may not have the best credit history and have your fingers crossed during the application process it’s important to remember that lenders are being particularly picky these days. Rather than take it too personally take the opportunity to turn your credit history around and proactively make some changes so that down the road you’ll be the consumer banks drool over.

 

If you find yourself dumbfounded at having received a decline notice for that new credit card it really may not be your credit scores fault! People with even the best credit history with scores in the clouds can and do get turned down for new lines. You should know that credit issuers also consider other factors before they will approve you:

 

Income & Debt– Unless you receive a “pre-approved” credit offer (and be careful of these!) you’ll have to complete a full credit card application. Your income plays a very important role in their decision making process. By authorizing lenders to check your credit score you allow them a full insight into your financial and to some degree, personal history. Credit issuers will weigh what is known as your debt to income ratio. This ratio is calculated by comparing your paycheck to what you already have in the debt category. If this ratio is too high banks worry you’ll be spreading your funds too thin and you may not be able to meet your payment obligations to them.

 

Job History & Lifestyle- Yes, your credit history actually includes your job history and your history of addresses. Lenders will actually throw into consideration if you’ve had 7 jobs or moved 5 times in the past two years. Though you may have a perfectly reasonable explanation for it, lenders can choose to view this as an inconsistent lifestyle. This may cause them to worry, again, that you may not be able to pay your credit card bill.

 

You Don’t Spend Enough- You read that right. Credit card companies are just that, companies, and they like you to spend money with them. If you show a consistent history of keeping low or zero balances on your existing cards, the card you are applying for may lose interest in you as a customer. Keeping a low balance on your card means they can’t collect interest from you and then they close the credit card.

Do you know what your credit score is?

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Does Credit History have you confused? Every one puts such a huge importance on your credit score.
Why is this credit score so important?
And how is it determined?

Your credit score is based on multiple variables that are dependent on your credit and amount of money loaned out to you.

Like - historical payments, time you have had an account, types of accounts and age of account

Your credit, or more appropriately addressed as the ability for you to pay back the money that has been loaned to you, whether it be through a credit card, mortgage, home equity loan, car, RV, boat, motorcycle, rental apartment or town home, or just about anything that involves you paying back money trustingly for the items you have purchased or pay for on a monthly basis.

When your credit score is accumulated, each item is passed through a system where points are either awarded or deducted based on the status of the terms.

For example, if you have a specific amount in a loan, and you are paying consistently and on time, then you will be awarded positive points. However, if you are late on payments, and have many credit cards close to maximum limit, perhaps have not made every house, car, or RV payment, on time, then you will be deducted points.

The computer program evaluates the awarded points and deducted points to come to a total. This total can range from around 330 to the lower 800's. This score is used to evaluate if you can make your payments and on time. There is usually a clear relationship between those that pay on time with a higher score and those that pay late with a lower score.

Those people with a higher score, above about 680 are capable of paying back the loans that they take out. However, those who have a score below 680 are less capable of paying back their debts on time. Lenders use this information to determine the terms of your mortgage when buying a home. If your credit score is up to par, you can expect a lower interest rate, shorter terms, and less fees. However, if your credit score is below the average, then you can expect to have a higher interest rate, more fees, and possibly more expenses that are associated with the lender taking a greater risk with a person that may not be capable to pay back the mortgage in a timely basis.

So as a result, your credit score is a huge influence in the mortgage terms that you can qualify for. Because of this, you should try to clean up your credit score to the best of your ability. This means paying back loans, paying on time, and closing out any credit cards that are not necessary in your financial situation. There are many things that actually affect your credit score. Keep in mind that if you pay on time and are on top of the debt that you have, having some debt and credit is a beneficial thing.

If you can prove that you can handle debt, and pay on time and towards the principal amount, then you will not have as many problems. If you have too many delinquencies, a short credit history, too many revolving accounts, too few revolving accounts, balances that are close to maximum, too many accounts, and of course major problems such as tax liens, judgments and bankruptcies, then you can expect your credit score to be lower than average.

In order to repair these credit issue to get the mortgage rate that you deserve, be sure to handle any debts or payments that might deduct points from your score. Pay above the minimum, on time, and you will quickly see your credit score increase as the problems are depleted. The basics for having a decent credit score is to not have too much debt, pay your debt on time, and not have too high of interest rates! If you feel you need to correct some issues on your credit score, then do it! You can end up saving thousands of dollars! Do not buy a home until you are financially stable and capable of maintaining a house. You do not want to take on something that you can not handle financially.

Credit scores explained further..

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The recent economic downturn has everyone finger pointing to establish blame in hopes of correcting the circumstances that created this spiraling situation. One of the most widely accepted culprits named have been the far too lenient standards for lending on real estate loans, which has led to millions of foreclosures and short sales across the country. The Dodd-Frank Wall Street Reform and Consumer Protection Act, dubbed the Dodd-Frank Act for abbreviations sake, was signed into law in 2010 to among many other things, begin the process of cleaning up the lending industry.

 

 

Since the enacting of the Dodd-Frank Act under a provision known as the “Risk-Based Pricing Rule”, consumers have been empowered with the ability to access their credit information without fee or penalty if declined or extended less than favorable terms. As of July 21st, 2011 consumers who were never declined for a loan or those who have received even the most favorable terms have the right to request their own credit reports as well. Essentially any consumer applying for credit under any terms has the right to see their credit reports and without a fee.

 

 

The three major credit-reporting agencies, Experian, Equifax and TransUnion are businesses just like any other business and don’t like sharing their products for free. Each American has been given the ability to research their credit histories for free once a year, though this report will not be accompanied with an actual credit score, and that’s the catch. It is this scoring process that remains protected by each of the three bureaus, and learning that three-digit number is what will cost you. The expansion of the Fed and Federal Trade Commissions regulations for the Dodd-Frank Act are anticipated to eventually force the hand of the credit agencies to begin sharing the actual FICO credit score with each borrower rather than holding their cards so close to their chest.

Find out what your credit score is now..

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