Prepare For Financial Emergencies to Protect Your Credit Score

Financial emergencies happen to almost everyone at some point and they can have devastating impact in your credit. This is particular true in today volatile economy conditions.

Many people have to declare bankruptcy due to huge financial disaster such as sudden unemployment, huge medical bills, a lawsuit or divorce. If they have prepared for such emergency, the adverse effect will be dramatically reduced.

If you want to keep your credit score in good shape, you should start planning what you would do in case of an emergency. Put your plan down in written form so you can review and refine as time goes on.

Here are some items that should be on your financial emergency plan:

1) A list of all assets you could convert to cash quickly. An example will be gold.

2) A list of all extras which will not affect your life during an emergency. This includes magazine subscriptions, cable television, Friday nights at the movies, spa and others.

2) A list of resources you can turn to could to in case of an emergency. This includes insurance or professionals such as a lawyer who deals in financial facets of the law or a severance package in case of retrenchment. Whatever it is writes it down.

3) A list of ways you could raise money in the short term, which includes renting part of your house, mowing lawns for others, giving tuition and so forth.

You should also consider overdraft protection for your bank or credit accounts. This will prevent you from getting a negative record on your credit report or a charge for insufficient funds. In most cases, you have a day or two to add funds into the account to cover the excess withdrawal. Some credit cards companies also offer a similar service, which can protect you in case you lose your job, and are unable to pay for a few months.

Another area to consider is insurance. You should have some form of insurance for your own health, your car, your home, and for liability incurred from an accident or other sudden financial problems. For a small monthly fee, you are covered against unexpected events that can drain your finances and leave you with a huge debt.

If you do not have a plan yet, start today. It is never too late to prepare for emergencies. You will thank yourself should you ever encounter a financial disaster in the future.

Understanding Your Credit Score and How it Was Determined

You probably already know that your credit history is kept in detailed records by three major credit bureaus. What you may not know is that in addition to all of that data, each credit bureau also assigns you a number, known as a credit score. That credit score is one of the most important factors in whether or not you can get a loan and if so, how much you will pay in interest. This article aims to help you understand your credit score and how it affects your ability to qualify for loans and lines of credit.

In theory, your credit score can run anywhere from 300 - 850. The average American's credit score is 692 and scores above 700 are good. Your score is calculated using a secret algorithm developed by Fair Issac Company, which is why the term credit score is nearly synonymous with FICO score.

The credit scoring system takes in to account many different factors of your financial history. The bulk of your score comes from your proven ability to pay bills on time. Late payments and failures to pay will seriously damage your scores. Next, the score considers your outstanding lines of credit and how much you still owe. Keeping low balances on credit cards is a good way to avoid loosing points for being overextended.

The length of time that you have had credit is also considered in your credit score. Young people with less of a credit history typically loose points in this area. It's important to establish some credit as early as possible and to maintain that well to prove over time that you can be trusted with larger loans.

Lastly, your credit score considers the types of credit that you have. A credit card is not the same as an auto loan which is not the same as a mortgage loan. You gain points for having a good history of well managed larger loans.

In actuality, because there are three different credit bureaus each with their own database, you have three different credit scores. Typically a lender will take the one in the middle or an average of the three when determining whether you qualify for a loan.

Each lender uses their own guidelines, but here's a standard break down of what your score means:

730+ - Excellent credit
700 - 729 - Good credit
670 - 699 - Average Credit
585 - 669 - Higher risk
Below 585 - Very High Risk

If you have average credit or above, you shouldn't have any trouble getting a loan. Those with good and excellent credit will pay less in interest than those who have smaller scores. If you fall in to a high risk category, it is a good idea to consider seeking help to repair your credit as you may find it difficult and costly to get any type of loan.

What Makes a Good Credit Report Score?

The FICO standard scale ranges from 350 all the way to 850. So, you're probably wondering- what exactly is considered a 'good' credit report score? In this article we will demystify credit ratings and discover what level you should aim for to increase your borrowing power.

Establishing what constitutes a "good" credit score is pretty easy; matter of fact, it's a standard formula. Once upon a time, prospective lenders used to carefully examine credit reports, weigh the pros and cons, contrast this with income and make a decision that was far more 'organic' than it is today.

In the 1990's, Fair Issac made the process an entirely formulaic matter, which assigned values to various points of data that resulted in an overall "score". the exact formula used to create this score remains a highly guarded secret, but it is know to make use of a variety of factors. The "score" in question is called a FICO and it has massive impact on your ability to borrow, be it credit cards, car loans or mortgages.

The FICO standard scale starts at 350 and goes to 850. So, you're probably wondering- what exactly constitutes a 'good' credit score?

Here's how the scores typically break down.

730+ - Excellent credit
700 - 729 - Good credit
670 - 699 - Average Credit
585 - 669 - Higher risk
Below 585 - Very High Risk

Well, starting at 730, you're considered in the 'excellent' credit range. Here, you will receive the best interest rates for mortgages or loans, the lowest credit card fees and ultimately, will have access to more credit and borrowing power than people with a lesser score. If your score is above 730, don't worry. You've 'arrived' in the credit world and at this point, you can't really do any better. The functional difference between a 730 and a higher score is nominal, if not non existent.

If your score is in the 670 to 730, you will still be able to quality for credit lines, but you will pay a higher interest rate than those in the 'prime' credit range. Here, the actual score itself matters; the lower your score happens to be, the higher interest rate you will need to incur in order to borrow, so improvements in this range are worthwhile. For example, an increase as low as ten FICO points can save you thousands of dollars over the term of a 30 year mortgage.

If your score is below 670, you are in what's called the 'subprime' range where you will pay the highest rates with the least access to credit lines- if credit lines are extended to you in the first place.

People with scores below 670 should promptly start rectifying this, as the interest rates and limited access to credit suffered at these levels can have a substantial impact on your ability to borrow and as such, your overall financial life.