Credit Cards

How Does a Credit Score Work?

A credit score is a number that is arrived at after an individual’s credit files or reports have been statistically analyzed based on particular criterion that are used to determine that person’s creditworthiness, or the risk involved in extending that person further credit. Unknown to a lot of people is the fact that this score is not only determined by how faithfully you keep to repayment deadlines or fulfill your debt obligations but also how often you successfully apply for credit services and fulfill their obligations.
credit card

Legally, credit bureaus are mandated to collect this information. Companies then involved in extending credit seek this information from credit bureaus and are furnished with it. It is against this information that the decision to extend an individual credit is made.

Credit scores have several functions as a financial tool within an economy, both at micro and macro-economic levels. They help credit and financial institutions decide the credit worthiness of an individual or a firm, and the risk involved in extending them credit, thereby allowing them to make informed, calculated decisions. They also act as a form of control, helping individuals monitor their own credit performance or worthiness while at the same time letting them know that any indiscreet behavior will be noted. Credit scores can also help at a fiscal policy level in determining whether measures and tools in place to govern the credit provision industry are actually effective, or working, and to actually inform fiscal decision makers what credit levels the economy is operating at.

Typically banks and credit card companies use this information but several other firms, like government departments, utility companies, mobile phone companies, landlords and the hotel and leisure industries all source this information from credit bureaus.

The calculation of credit scores varies from bureau to bureau but some general rules of thumb exist, and a typical simplified format is outlined below:

35 – Payment History
30 – Credit to Debt Ratio
15 – Credit History
10 – New Credit
10 – Credit Types in Use

Thus the credit score or credit rating is calculated as a percentage of 100. The break-down above implies that if you excel in one area and lack in another, only fixing the areas which you lack are going to improve your score.

The advantages of having a good credit score are about as obvious as the ones resulting from having a bad credit score. With a good credit score, it is easier to get credit extended to you, at lower interest rates, and with simpler terms. Bad credit scores often imply that requests for credit are either ignored or end up having credit extended at high interest rates with additional built-in costs like insurance and stringent terms to guard against bad debt.

Different scoring systems are used, but in the United States, the most commonly utilized system was designed by a company called the Fair Isaac Company and runs under the acronym FICO; a resultant score derived when using this system is called a FICO score. FICO controls the greatest percentage of the credit score market in the United States and Canada although there are several other competing firms that collectively share a very small percentage of the market as well. In the US, FICO scores range from 300-850, with 723 being a median score as of 2010. This figure reflects the likelihood that a consumer will go 90 days past due or more in the subsequent 24 months after the score has been calculated. The higher the consumer’s score, the less likely he or she will go 90 days past the due date in those subsequent 24 months.

It is important to note that different services recognize different limits of scores below which they are not willing to operate, depending on the economic situation and their own financial situation. The risk, indeed, varies from credit service (mortgage, credit cards) to companies as well.

How Do I Find the Best Credit Card?

Are you looking for a new credit card or a first time credit card? This can be a task made difficult due to all the offers out there. The best way to choose a credit card is to research the different credit card companies to find the best card to meet your needs. Find a company that offers the best rates for you according to your credit rating. A good credit rating can get you a better deal on a credit card. If this is the first time applying for a credit card, then look for one that is made especially for those who have never established credit.

Credit Cards

The best credit cards are the ones with lower interest rates, no annual fees, and a reliable company you can trust. Other things to look for when shopping for a credit card are the application fees, late fees, over limit fees, and even how the bill can be paid. Some credit card companies have hidden fees, so be sure to read all the facts before signing up for that card. These are facts you need to know about; and you will need to consider how they will affect you in being able to pay back the charges you have made on the credit card.

An introductory rate credit card is an offer to get you to switch credit cards to another credit card company at a lower interest rate. The key word is introductory; which means this rate will change after you have had the card for so long. Other cards are one interest rate for the life of the credit card. Even though the interest rate may be a little higher at the beginning than the introductory rate cards; you will know what interest rate you will pay throughout the years that you use the credit card. Some offer a variable interest rate credit card; where the interest rate is always changing, and this makes knowing what will be paid back in interest charges confusing.

Can you pay online or are mailing the payment the only way? This might be something that would help you decide which one you like. Do they charge a fee just to take out the card with them? Some credit card companies charge a processing fee making you pay before you even get to use your card. This makes you owe before you even get to enjoy spending. Reading the cardholder agreement will help you determine what each card has to offer.

One way to find the best credit card is to make a list of what you want out of your credit card company, and then start looking at credit card sites on the web and comparing what each has to offer. Things to put on the list to check on are such things as finance charges, grace periods, minimum payment, and cash advance fees, to name a few. All of these things are good to find out about and know before choosing a card.

How Do I Improve My Credit Score?

Your credit score is very important. It follows you everywhere. The higher the better. One of the most common groups that look at your credit score are lenders. They want to know if you will be able to pay them back and how much you can afford to pay back each month. Some employers will even check your credit score.

Credit Cards

Your credit score is a calculation that basically lets people know how well you are able to pay your debts. It is made up of several things like payment history, debt level, and length of credit history. Your payment history is probably the most important part of your credit score. Make sure that you send in your payments so they arrive on time. Thus the better your history of paying the better your credit rating. Keeping a low debt level is also very important. Keys to a low debt level are not running your credit cards to there maximum limit and don’t take out to many loans. The longer you have good history with accounts the better it looks for your credit score. This is why it is good to keep some accounts open even if you do not use them very often. This works good with a department store credit card.

So now that you know what your credit score is and how it effects you, it is time to learn how to repair a damaged credit score. Do not get over stressed if you have screwed up your credit rating. In this current economic situation many people have very poor credit. The first thing that you will want to do is get your spending in order by making a budget. You can find out where you are wasting money and help cut that spending out. Try to stop using your credit cards and pay that debt down. I try and use a rule that if I can not pay cash for something then I will not buy it. This helps when trying to stop using your credit card. Most of the time you will not buy something if you see the actual money leave your hand. If it goes on a credit card you have the out of sight, out of mind syndrome. The faster you can lower your credit cards to 30% or less from your maximum level the better for your score. A typical mistake that people will make is asking a credit card company to lower your card limit, if anything ask them to raise it a little. Another thing that you can do is look at your current credit score and see if there may be some mistakes on it or some things that you can get taken off. If you have a really good history with a credit card but were late once or twice it may help to call the company and ask them to remove those late charges from your history.

The Keeper by Santander Bank

Below is a special video preview of a whimsical documentary titled “The Keeper” directed by Chris Bailey and Jake Naish and brought to you by Santander.The Keeper by Santander Bank

This documentary short was filmed about a man who makes a hobby of collecting and scrap booking his debit card statements. This short film won the MOFILM Cannes 2011 film contest. This film contest was sponsored by Sovereign | Santander, and in this film the main character has saved his debit card statements for the past thirty years. Although silly and kind of funny at times, the video brought up some important points.

First of all is the importance of good record keeping, this man had saved his receipts for the past thirty years, he knew all his expenses and he had a connection to them. Most people these days lose touch with what those statements even mean or even what you had purchased at the time. It is also important to look at all your monthly statements to check for credit fraud and make sure no one is charging you maliciously.

Second is just how useful a credit card or a debit card in this case can be. This man was able to buy almost everything he needed in life. He mentions one particular month that he bought “A night at the city hotel,” a ring and some flowers. All of which led up to him proposing to his wife. However in a sad turn he no longer is married but it is important to see that he still uses the same debit card, since it is something you truly can’t live without.

This post is a paid editorial brought to you by Santander