What is Credit

Credit is how well you pay back money that you borrow from others. Credit plays a critical part in nearly everyone's life, but understanding what credit is and how it works can be a challenge. A great way to understand the role credit plays in your life and to empower yourself as a consumer is with a basic knowledge of two credit fundamentals:

Your credit score is a number based on the information in your credit file that shows how likely you are to pay a loan back on time the higher your score, the less risk you represent. The credit score that lenders use is called a FICO® score. Your FICO score helps a lender determine whether you qualify for a loan and what interest rate you'll pay.

What's in Your Score
Knowing what information a FICO score considers is the first step in understanding how to improve your credit health and build a better score.

What's Not in Your Score
Your credit file contains information that does not reflect on your creditworthiness - such as race or income - which is ignored by the FICO score.

How Scoring Helps You
FICO scores provide a fast, objective measurement of your credit risk, which has a number of benefits for you.

Improving Your Score
By understanding what lenders view as good credit management, you can build a strong credit history, improve your score and qualify for better loan terms.

Facts & Fallacies
Learn the facts behind the common misconceptions about credit scoring.

This is a "snap-shot" of your past and present debt, current available credit, and a rating of your debt repayment history. This is very important to a lender so that they can know if you are a good credit risk.

Credit Report

Your Credit Report is a document completed by a credit-reporting agency providing information about a person's credit cards, previous mortgage history, bank loans and public records dealing with financial matters.

Your credit report shows the information you have on file at one or all of the three major credit reporting agencies - Equifax, Experian and TransUnion. Each of these reporting agencies (also known as credit bureaus) maintain their information separately, so the data you have on file may differ between them.

What's In Your Report
Your credit report contains a variety of personal data. Some of this information, but not all, is used when making lending decisions.

How Mistakes are Made
Mistakes happen - and they can affect your ability to obtain credit. By learning the most common mistakes, you'll know what to look for when you review your credit report.

Checking Your Report
You should review your credit report from each credit reporting agency at least once a year and especially before making a large purchase, such as a house or car.

Average Credit Statistics
Fair Isaac recently surveyed the panorama of credit activity across the US by analyzing a large sample of people who recently obtained new credit.

Credit Inquiries
Find out what credit inquiries are, how they may or may not affect your FICOÂ® score, and much more.

NEW YORK (CNN/Money) - You may be out of school, but that doesn't mean you're free from report cards. In fact, if you want to buy a house, a car or any other big-ticket item, a lender will look up your "grade" as soon as you come knocking. That grade is your credit score.

Generally speaking, a credit score measures the likelihood you'll repay what you owe, and it is based on information in your credit report.

The rewards of raising your score speak directly to your wallet: You'll qualify for more loans and be offered better interest rates.

There are many varieties of credit scores available to lenders. But the most widely used for large loans are FICO scores, which are based on a scoring system developed by Fair, Isaac & Co., and which are provided to lenders by the three national credit bureaus - Equifax, Experian and TransUnion.

Consumers may now get their FICO score or a comparable version of it from each of the bureaus. It pays to review these scores at least three to six months before shopping for a loan so you'll have time to improve your standing before approaching a lender.

Following are five things you can do to boost your creditworthiness, plus more information on obtaining your personal score.

5 steps to better credit
Correct blatant mistakes. Your credit score is only as good as what shows up in your credit report. Review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan. Changing a mistake on your report - such as a payment that is wrongly labeled as late -- can take 30 days to three months, sometimes longer.

Pay your bills on time. This is always a good practice, and it's especially critical that you make prompt payments close to the time you need a loan. That's because a late or missed payment in the last few months is likely to lower your score much more than an isolated late payment five years ago.

Reduce your credit card balances. A heavily weighted factor in your FICO score is how much money you owe on your credit cards relative to your total credit limit. Generally, it's good to keep your balances at or below 25 percent of your credit card limit, said Jeanne Kelly, founder of The Kelly Group in Brookfield, Conn., which helps clients improve their credit scores.

Pay off debt rather than moving it around. Since the ratio of your credit card balance to your credit limit is key, closing out an account and transferring the balance simply means you increase that ratio, which is likely to lower your score. In other words, say you owe a total of $2,000 on four credit cards, each of which has a $2,000 limit. Your total credit limit is $8,000, of which your total balance ($2,000) accounts for 25 percent. If you transfer all your balances to two cards and cancel the other two, your total credit limit is reduced to $4,000, and your $2,000 balance now accounts for 50 percent of that limit.

Don't close unused credit card accounts near loan time. If you have several credit card accounts but are only using a few of them, you'll only raise your balance-to-limit ratio if you close the unused ones. You also shouldn't open new accounts when applying for a loan if possible. If you have a short credit history or very few accounts, opening a new credit line may lower your score since you don't have a proven track record, said Jan Davis, an executive vice president at TransUnion. What's more, a new account will lower the average age of your accounts, another factor in your FICO score.

Where can I get my score?
To find out specifically what you must do to raise your score, you can order your score report from all three national credit bureaus. In addition to your score, you'll get your credit report, an indication of how your score ranks nationally and an explanation of how you can boost your standing.

There are two reasons to get your score from all three bureaus: First, each bureau may have slightly different information about you depending on which companies have reported to them on your accounts -- reporting is not mandatory and many companies will report more regularly to the bureau based in their region. Second, mortgage lenders often look at all three of the bureaus' FICO scores and take the middle score - not the average -- to assess your eligibility. So it's in your interest to know what that middle score is and make it the best it can be.

Currently, only Equifax offers consumers their actual FICO score. It can be purchased online for $12.95 at Equifax or myFICO.com. TransUnion and Experian sell their own score brands, but spokesmen for the two bureaus say their scores are comparable to FICO scores in that any advice they give you to improve your score will apply to the FICO score as well.

Like Equifax, the Experian score can only be purchased online for $12.95. The TransUnion score (included whenever you buy your TransUnion credit report, which will cost up to $9.00 depending where you live) may be purchased online, by mail, or, in some cases, by phone.

If you were denied credit, you're entitled to a free credit report from the bureau supplying the information that was the basis for denial. Some states also entitle residents to a free credit report at least once a year. There is, however, no requirement that credit scores be offered free, although with TransUnion your score is automatically included in your report, whether you get it free or not.

Good Debt	Bad Debt
Debt that makes you money.	Debt that costs you money.
Debt used to purchase assets that go up in value	Debts used to purchase items that go down or have no value.
Debt that increase your tax write-offs.	Debt that is not tax-deductible.
Mortgages Home Equity Lines of Credit	Auto Loans Boat Loans Credit Cards
Balances tend to decrease As the asset increase creating equity.	Balances may or may not decrease as the items decrease in value.

The 2 worst debts you can have are credit cards and auto loans. You use them to buy consumer items that are worth substantially less the moment you purchase them and they continue to lose value over time. At the same time the balance due and the interest continue to be collected.

If you spend $20,000 on a new car and finance that amount at 9% for 60 months, you spend $25,000 and after 5 years have an approximate trade-in value of $5,000.

Credit Cards are also bad debt. They are used to buy consumer goods or services which will have no value once they are purchased, such as food & clothing. These items have almost no resale value. The credit card interest rates, regardless of the initial teaser rate, are upwards of 12% to 15%. $5,000 worth of credit card debt over 5 years making the minimum payment would cost $8,400 in payments and the balance would be about $4,300. That is a net loss of $12,700.

Mortgages and loans on homes and are tax-deductible. The value of homes in the Bay Area tend to increase from 5%-15% per year. A $300,000 mortgage with a monthly payment of $2,000 gives you an annual tax deduction of $18,000. After 5 years of home ownership there can be as much as $100,000 in appreciation and $90,000 in tax-deductions.

If you already own a home and have some bad debt, you can convert it into good debt. There are many ways of paying off debt using mortgages and lines of credit. You can pay off high rate credit cars and auto loans by utilizing the equity already in your property and you can lower your payments by thousands of dollars.

You can schedule a free, no-obligation appointment with me by calling my office at 925-997-1156. In this meeting I will share with you what your options are and start the process of finding the perfect loan to fit your current needs. This will allow you to know how much a debt consolidation can benefit you and exactly how much money you can save.

If you would like to know more about this process, please call the following 24-hour free recorded message at: 1-877-432-6823 extension 8604 and request a FREE copy of the report on consolidating debt. Don’t talk to any salespeople; simply leave your name and address on voice mail and you will receive this critical report in several days. For additional information concerning your mortgage needs, please call me TOLL FREE at 1-877-432-6823 extension 8604 for a