6.Superb Credit Utilization

5.Go Beyond the Humble Payment History Tips

Payment History Definition - A record of monthly payment status on individual's credit report listed since the time the accounts were established. A payment history is an indication for lenders and creditors whether an individual is a lending risk due to a history of late or missed payments.

Contributing 35% to your score calculation, this category has the highest weight on refining your score, but past difficulties like missed or late payments are not straightforwardly solved.

Humble payment Tips:

• ·         Pay your bills on time
• ·         If you have missed payments get current and stay current
• ·         Be aware that paying off a collection account will not remove it from your credit report.
• ·       If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.

Current Status – This is a rating based on recent accounts as they were reported to the credit bureaus. The best status is called “paid as agreed”, this means your behavior is normal or as expected. The current status is commonly displayed as a numeric value:

Numeric* Status	Meaning
1	Account being paid as agreed
2	1 to 30 days past due
3	31 to 60 days past due
4	61-90 days past due
5	Referred for Collection
6	Unused
7	Account being paid by either a chapter 13 bankruptcy court or a non-profit financial counselor
8	Repossession
9	Account has been charged off

Lenders are responsible to classify the numeric status of an account and report it. Sometimes they are more consumer friendly and do not report a status higher than 1 until the client is several months due. At this point the situation gets seriously risky for them and they will push you to quick-fix solutions that only solve the issue in short-term, and what will happen in long-term? 

When will you have the power to fight back or argue?

4.FICO Score Break- Down

3.FICO Score - The Most Used Credit Score System

The most used credit score system is commonly called FICO score, developed by Fair Isaac Company. Fair Isaac methodology became public in 1986 and one decade later, more than eighty per cent of mortgage companies were already using it for credit decisions. Therefore, credit reports information must come from secure, reliable and using specific techniques to filter information. These agencies as it was referred before are bureaus, informational agencies that give credit profiles or credit history.

This method uses many variables to predict consumer’s risk and is able to turn it measurable in a scale. The FICO range is 300 to 850.

Do you remember the five major components of Post 1?

1. 35%: Payment history

2. 30%: Credit utilization

3. 15%: Length of credit history

4. 10%: Types of credit used

5. 10%: Recent searches for credit

In that range customers are classified as:

I decided to use this method because it is a Universal and user friendly framework.

Final Score

=C1*0.35+C2*0.3+C3*0.15+C4*0.10+C5*0.10

Next Post will be about component number 1 – Payment History and how it affects FICO score.

Additional Information

John Uizheimer, president of consumer education in U.S A elucidates that “score of 820 to 830 can make you seem unprofitable for the company.” So just 5.7 % of the population do not represent profit for lenders. 

2.Credit Reports – "The Secret paper behind the Scores"

A credit report or sometimes called the credit history is the analyses of the client, identifying all positive or negative points. Each client is different, so one credit report should be done for each customer and include at least all the five components refered in the first post.

All large, medium or small entities that provide credit need to analyze their customers. Would you sell cash, services or products without knowing who is on the other side?

NO

This analyses are going to provide suficient information to score the client and after define the conditions, if any.Where comes the information from?If you were in a difficult financial situation and asking for credit, would you provide it? Probably no!

Most credit reports gather information provided by credit bureaus, specific and official credit reliable sources.  There are 3 major bureaus:

• ·         Equifax
• ·         TransUnion
• ·         Experian

Can WE do it as well? Yes we can.

A great help to improve your score is to see the same picture that they are seeing. Ask once a year your personal report to one of the 3 major bureaus. It is worth the few pounds!!

At the end of the report you will be graded as the following example, ask the report and try to score your own "credit reputation".

Curious Fact: Do you think banks or financial institutions buy to the 3 bureaus for information and then mixed it in one report, most of the cases no. Because it would be too expensive, so in most of the cases we can say their analyses might be incomplete.

1.Consumer Credit Risk

 Dear Readers,

I am writing this post in order to achieve a further knowledge about how credit scores work and if it is possible a consumer to improve his score by himself following simple steps. I will share all the achievements with the public interested because I think it has many advantage to understand this topic and maybe you can put it in practice. 

Most of you may think that this would be a great idea for a dissertation and I agree, unfortunately I am Master student that wasn't authorized/advised to do so due to diverse reasons. The primary reason was that the University believes it will take to long and so it should be done as PhD Research.

Well I decided to do it as a private researcher and I hope to achieve this goal with wise advises from you all.Many researchers have been done to understand how creditors can minimize their consumers risk but none have been done in the consumer perspective to improve it and gain simple benefits from it.

Consumer Credit Risk

It’s reasonable to say, that common people do not know how credit score works and who looks at them. It’s important to understand how much risk does a customer represents to a creditor and how interest rates are defined by risk score. The aim is to view across the customer perspective and how credit risk knowledge would be important for them. Explain if it’s possible for credit users to have influence on their credit score and to prove that is financial healthful to have control of it. 

Basic Concepts

Credit – The oxford dictionary defines credit as the ability of customers to obtain services or goods before payments, based on the trust that payment will be made in the future. (Oxford dictionary)

Credit risk – Credit risk is the lender risk of loss from a borrower that do not accomplish the payments as arranged.

Consumer or personal credit – It is defined as goods or services provided to an individual where the payments are made in the agreement conditions time and not in the moment of consumption. The Bank of England´s defines it as Lending to individuals. The most common types of consumer credit are credit cards, consumer’s lines of credit, retail loans and mortgages.

Credit bureaus – These are Companies that collect information from different sources and provide a consumer credit profile for a diversity of practices.  In United Kingdom are known as credit reference agency.

Credit score – This represents the creditworthiness of a customers in a numerical way based on statistical analysis, for example FICO score. The score is normally based on credit bureaus information, creating an individual credit report or credit history report.

A consumer score is calculated by five major components:

Payment history 

Credit utilization

Length of credit history

Types of credit used

Recent searches for credit

      

      During the last year I have been researching about if it is possible to define our own credit score following simple rules and behaviours.Just think about the advantages of improving your score, in the end of the day you are just improving your image for your creditors. What do you think your financial profile reveals? 

a    

I     Imagine the following case

         

     You have monthly average costs of 500 pounds and you are allowed to use (credit Limit or Plafond) 1000 pounds, your ratio between expenses and credit limit is 0.5. This ratio is regularly used by banks or financial institutions to define your credit profile. A simple way of improving your credit score is with just a phone call to your account manager. Probably he will be surprised by your request, as him to increase your credit limit although you do not need it to survive.

      Why?

      If you have been managing well your finances he will accept your request, this will generate a lower ratio.But, please, do not start increasing your normal expenses just because you can. In 6 months your credit score will be better, you will be less risky and you will be offered better conditions when required, for example in case of new findings or others that will be explained further. 

    

      Advantages of improving your score will be posted soon. In a period of financial weaknesses as the actual EU crises is going trough, principally my home country Portugal, few steps that can generate savings are always welcome.

 WE CAN DO IT, GO PORTUGAL!!!