Vitesse Financial

It's no surprise that late payments can have a detrimental effect your credit score. However, factors such as how late a payment was or the frequency with which payments are late can affect your score in different ways. Understanding credit repair will help.

Different credit scoring models place different amounts of weight on late payments, but the most common scoring systems are engineered to predict one main thing: the likelihood that you will have a 90-day late payment or worse in the two years after your score is determined. Here is a breakdown of the different lateness levels and how they affect your score:

30 or 60 Days Late - This will only damage your credit score if it is reported as current. If you were 30 or 60 days late one time in the past, it will not have a lasting effect on your credit score. However, if you're consistently 30 or 60 days late, you will be doing long-term damage to your score.

90 Days Late - This is where your score starts to suffer significant damage. Your credit score will be lowered for any record of being 90 days late, regardless of whether or not it is current. Once you have this on your credit record, scoring systems will determine that you are likely to do it again and will lower your score accordingly.

120 Days Late or more - Being this late with a payment does not directly add to further decreases in your score. However, by this point, your creditor will probably turn you over to a collection agency. This process will be on your report and will lower your score.

Settlements - Making a deal with your creditor can allow your delinquent account to be closed. Under the right circumstances, a creditor may settle for a payment of less than what is owed. For example, if you're renting an item and you've fallen way behind in payments, the renter may be willing to settle if the rental property is returned in good condition.

Quick Credit Repair Tip: While attempting to settle is a good strategy for saving money, it will still show up on your credit report as a debt settlement for less than what was obligated. This can seriously lower your score.

Obviously, reports of foreclosures, repossessions and bankruptcy will lower your credit score significantly as well.

What Does It All Mean for Credit repair?

Simple tips can be gathered by looking at what they're not telling you about your credit report. If your goal is to raise your credit score, keep these in mind, They all can increase your credit score.

1)      Pay your bills on time and do your best to avoid being 30 days late or worse.

2)      Carry low balances on high limit credit cards instead of maxing out one card.

3)      Don't close old accounts, even if you never use them.

4)      Spread out your credit inquiries.

5)      Diversify account types.

6)      Try to pay off your debt completely instead of settling.

Credit scoring systems are often not completely open about their processes. Knowing things like how your score is determined and the effect of late payments can help you keep your score high. Straightforward advice can be determined by looking at what they're not telling you about your credit report.

Credit Score Components and credit restoration

When you get a credit report, you're often not told exactly what factors were taken into consideration when formulating the score. No matter where you get your report from, your credit score is made up of five different parts, each with its own level of significance. They are: Understanding these are crucial for credit repair

1.      Payment History

2.      Balances Carried

3.      Credit History

4.      Mix of Accounts

5.      Inquiries

Payment History - Payment history accounts for 35% of your credit score. It is based on your record of paying bills and the timeliness with which you pay them. Most of this information is derived from the six months prior to the credit report request, but your payment history score can be affected by any past dealings with creditors.  This part of your report is weighted such that the highest payments are considered the most important. For example, a mortgage loan would probably be rated highest, followed by an auto loan or high-payment credit card.

Balances Carried - 30% of your credit score is based on balances carried. This involves the ratio between limits and balances. In general, keeping a low balance on a high credit limit will result in a higher score. For example, say that you have two credit card accounts: one Visa with Wells Fargo and another Visa with Citibank. The two cards both have a credit limit of $10,000. If one card is maxed out and the other has a balance of zero, the ratio of balance to credit limit will be 100%, leading to a low credit score. However, splitting the balance between the two cards can result in a higher score. Having $5,000 on each card lowers the ratio to 50%. You can keep your score high by owing less than 10% of a high credit limit.

Credit History - This refers to the length of time that you've held credit accounts and is worth 15% of the credit score. In general, the more time that you've held an open account, the higher your credit score will be. Debt consolidators will often suggest closing accounts that you never use. While this can be an effective organizational and management strategy, it can actually hurt your score to close long-standing accounts that have a lot of previous use. If your main objective is to keep your credit score high, it would be wise to simply shred old cards that you don't use but keep the accounts open.

Mix of Accounts - The range in types of accounts that you hold determines 10% of your credit score. Ideally, you'll want to hold several different installment and revolving accounts. A great mix of accounts would include one mortgage loan, one automobile loan, three credit cards and a number of other small accounts. An unhealthy mix of accounts, such as having six credit cards and no secured or installment loans, can bring your credit score down.

Inquiries - 10% of your credit score is determined by the rate at which you acquire new debt. Requests for credit average out to be about 5 points each. Credit inquiries can stay on your report for up to two years, and typically only affect your score for 90 days. If you want to keep your credit score high, don't apply for several new credit items within a short timeframe.

Taking control of your credit is the most crucial step towards securing financial stability and independence and increasing your credit score. The United States Treasury Department and the Federal Reserve Board recently outlined five simple tips for citizens to follow in order to better manage their credit. By following these top five tips for credit management you can take control of your debt, improve your credit score and put away money towards future goals.

1. Create Savings

The first step in credit management is to establish a savings account. By investing your money into a savings account you are building up a large fund of money that can be used to help lower your debt by giving you a safety net to fall back on. For example, if your car suddenly breaks down and needs to be replaced, having a savings account established would help you to make a large down payment on a new one. This would lower the amount of financing you would need to purchase the car and would produce less debt for you to have to pay off down the road.

Creating a savings account can help you to have a surplus of money for emergencies and it gives you additional options for making payments. With extra money saved up you can pay more into your bills without having to worry about not having enough money for any unexpected expenses that might occur. Establishing a savings account also earns you money through interest. Funding a high yield savings account and withdrawing the money only for financial emergencies can help you to produce more equity over time.

 2. Stay On Top of Bills

An important tip in credit management is staying on top of your bills and paying them on time. When you are late with payments you can assess additional late fees on top of the debt that you already owe. This can have a negative impact on your budget and actually create additional debt problems by harming your credit score. Try to budget your money so that you can pay your bills a few days before they are due to keep your head above water and the fees from piling on.

When you make late payments you are also slowing your progress towards paying down your debt. The longer it takes for you to pay off your debt, the higher amount of interest you will accrue. In the end you will end up paying a significant amount of money more than the credit you took out, which is a waste of your money and time.

 3. Be Selective With Credit

Obtaining credit is sometimes an essential process for buying a home, car or for furthering education, so when credit is necessary you should be picky about who you sign with. You should shop around to find the best rates and the best plans that will suit your financial needs. The key is to find credit that has a low interest rate or a fixed interest rate so that you don't accumulate additional debt while trying to pay it off.

Being selective with your credit also means knowing when to use credit. If credit isn't necessary then resist the temptation to use it so that you can keep the amount of debt you owe as low as possible. You shouldn't sign up for a new credit card while working to pay off your debt from another card. The same goes for obtaining a loan.

Quick Credit Repair Tip: When you make a serious purchase like a car or a home you should be absolutely sure you are getting what you want so that you don't need to take out additional credit to replace it down the line. A loan is a serious investment that should considered for expenses that will improve the quality of your life for a long time.

 4. Pay More Than Minimum

When paying down your credit it is important to pay more than your minimum payments. This is because you will accrue interest on your credit over time. By making the minimum payment each time you are most likely only paying enough to take care of the annual interest, thus making it hard for you to actually pay off your debt. You should get into the habit of paying more than the minimum amount to be able to get over the interest threshold and start contributing to paying your debt down. This will increase your credit score.

You can take baby steps towards paying off your debt by paying a small amount more than the minimum each time; even a few dollars more each month can help. However every now and then when you find yourself with a surplus of money you should consider making a large payment, even if no payment is due. The longer you sit on your debt, the more interest it will collect, so paying more than the minimum each month is a good way to be sure you don't end up with high interest rates later on.

 5. Know Your Credit

It is important for you to be aware of your credit score so that you can take steps towards improving it. Your credit score is a factor that is used when applying for a loan or credit card and can even effect your chances of being able to rent a home or apartment. Your credit score gives creditors information regarding the likelihood that you will be able to pay your bills according to your past financial history.

Quick Credit Repair Tip: Most credit scores will range from 300 to 850, with anything 740 and above being considered good credit. Most financial institutes will consider less than 620 to be high risk.

Having a low credit score can effect the amount of interest you will have to pay on a loan. By improving your credit score you can improve your chances of having a low interest rate whenever you do require credit or financing. Your credit score is usually factored by considering your history of making payments, the total amount of debt you owe, how long your history of credit extends, any new or recent credit you may have obtained and other financial factors. Understanding how your credit score effects you and taking steps to improve it will help you to achieve the financial stability you desire.

Computers make it very easy to stay organized. You can monitor your credit score,  financial transactions, check your account balances and make payments all in one place without having to keep track of different papers. Many companies allow you to pay bills through direct deposit, sometimes automatically. Be careful of using this option, though.

If you're not in the habit of regularly checking your finances, you could end up being surprised by your account balance at some point. There are also many computer programs that can help you organize and manage your finances. Popular programs or web sites include:

?  Quicken

?  FinanceWorks

?  Wesabe

?  Arixcel Accounts

?  Microsoft Money

?  Mint.com

Just like with paperwork, you'll have to be disciplined and monitor the financial information on your computer often. Using these programs and taking advantage of online payments can help decrease your paper clutter and increase your chances of getting out of debt., as well as repairing your credit score