Many people know that they need a high credit score to get a loan. A high credit score means that there is a lower chance that the money will not be repaid and the easier it is to borrow money. However, it is not widely known what goes into a credit score.

Credit bureaus use information about each borrower that is taken from a number of sources. Former employers, current employers, the number of residences a person has had in the last five years and whether or not the borrower owns his/her own home all provide some input data. In addition, a person’s credit history is examined and how often bills are paid on time is considered. Credit bureaus also look at legal issues such as civil suits, judgments, bankruptcies and criminal convictions which may affect a person’s credit.

All of these items go into the evaluation of a person’s credit. The end result is a determination of a person’s capacity, character and collateral - the three Cs of credit.

# Capacity is concerned with a person’s ability to repay the loan. The lender evaluates the borrower’s income and compares it to current expenses. The length of time a person has been at his/her job, the number of dependents and any alimony or child support payments are also considered. Not only does capacity involve a person’s current financial condition but it also considers future potential income - as would be possible for doctors, lawyers and professional businesspeople.

# Character is a judgment of a person’s willingness to repay debt. By checking into past credit history a lender can determine if the applicant is living beyond his/her means, if he/she is overextended or has been delinquent in paying bills. Character also reflects a person’s honesty in giving accurate and complete information on the application. Judgment of a person’s character also includes an examination of a person’s stability - how long has the applicant been at his/her current employment and how long has he/she resided at the present residence.

# The third C is collateral. Since there is always the chance that a person will be unable or unwilling to repay the loan, lenders often require collateral (generally property is used to secure the loan). If the borrower defaults on the loan, this property can be seized and sold so that the lender can recoup the money lent. The value of the collateral is directly tied to the loan. A car loan may require the car as collateral, a property loan may require the property as collateral. Sometimes, a lender can require money as collateral. A Certificate of Deposit or an annuity may be pledged for the loan. In all cases, if the borrower fails to pay, the asset is seized as repayment for the loan.

What’s the hardest thing to do in these days of stiffer competition, and a very mobile, selective, and dispersed customer base?

Making sure they stay loyal to you, of course!

OK - so what ideas have you got to do this? How can you ensure that when your clients think ‘new cars’ or when their buddies think the same, it’s your name they think of?

Well, try this for size - help them fix their credit files, and keep them fixed…
Look, if you have to turn down a customer as they are desperate to buy your cars, they have the deposit, but they have a lousy credit score, and can not get an auto loan, if you could help them repair their credit score, get them the auto loan, you get a sale, and you get a customer for life! Don’t you think that would give you just a little edge over your competitors, and put your repeat business solidly ‘in the bag’?

Now, you may not be aware of this, but in many cases, your client’s credit file contains so much rubbish and even incorrect information, that with a bit of work, they could actually repair their credit file information themselves, but most wouldn’t know either where to start, or would not think they even could do this themselves very successfully.
Just to be able to contact your entire client base, and offer a new service for them, even though you must make a charge for it to at least cover your time, should make the majority of them sit up and think that - hey - this company actually thinks about my well being, so my next auto loan for my replacement car will be with you!

Now, before you dash off and leap into this, you should actually bear this in mind.

There is quite a bit of bad press on credit repair companies at the moment, and you may be quite justified in thinking that there is enough dirt written about a few rogue auto dealers without also taking on the dirt surrounding credit repair companies and their operations.

Have a look at some of the negative things being said about credit repair companies, and the arguments in their favour. Then think again about my suggestion that you offer this service to your clients yourself.

It is rather unusual, that a US Federal Department has taken the time to warn people off using such credit repair companies, quoting that ‘there is nothing that these credit repair companies can do that the individual can not do for themselves…’

So, are these new breed of companies all just scams, like the Feds tell us they are, or are they actually playing a very worthwhile role in society…

Let’s just take a look for a minute at what these credit repair companies purport to set out to do for your clients.

By repairing your clients credit files, removing irrelevant, or in many cases, incorrect, information from their credit file, their chances of getting more credit such as an auto loan, or indeed, the rate they pay for their auto loan in terms of inflated interest charges, can be greatly altered by making sure that only relevant, or correct and up to date information is stored there.

This can actually save them thousands of dollars, not to mention the heartache of getting turned down for credit. These sorts of issues have to be resolved quickly, or their whole life and lifestyle can be blighted.

But why is there so much negative press against these credit repair companies, and especially from US Government departments?

And why this great crusade to inform everybody that there is nothing that credit repair companies can do that your clients can not do themselves?

Whatever service industry you like to chose, there are rogues in every case. You only have to look at your industry, the motor industry, to see examples of people being ripped off left right and center. But again, in this internet-enlightened age, you can get any information that you like on how to change the oil in your car, or even to take the engine out of your car. Does your average client want to learn a new trade, like getting under their car and draining the sump oil, or struggle to take the engine out of their car?

Heck, no - they would call in an expert of course. And to avoid being ‘ripped off’ they would make sure that the organisation that they called was either personally recommended, or had proven credentials and a proven track record.

Well, what’s the difference with getting your clients credit files repaired? They may know how to do it, like taking out of their car engine, but with such an important outcome at stake, why do it themselves?

Now, over the last few months I have been conducting a survey on US-based credit repair companies, and a number of them operate a ‘branding’ facility where your company become an agent for the best ones, and you simply follow the easy steps in their credit repair systems, and help all of your clients to a better credit report where possible.
It’s a total ‘Win - Win’ scenario.

You charge your clients sufficient to cover all of your extra time and costs of being a credit repair ‘agent‘, your client gets a better credit file, can afford to buy your cars, get granted auto loans at reasonable rates, and tells all of his friends what a wonderful service you offer to your clients.
Believe me; this credit crunch is going to get worse before it starts to get back to normal.
Make sure you are one of the survivors by following the advice in this article, and help get your clients to repair their credit and start spending on your auto loans again…

Geoff Morris is an Internet Entrepreneur who quit his corporate job many years ago, and is no stranger to taking on institutions to protect the integrity of his public credit files. Take a peek at some of his real life solutions on actual credit repair facilities at http://www.questionmycredit.com/

The Fair Isaac Corp., the creator of the FICO credit score - recently unveiled a new scoring model for determining credit scores. It is being called FICO 08.

The Better Business Bureau of Mississippi offers the following information about FICO 08 and changes it contains can affect consumers.

FICO scores range from 300 to 850, with higher scores being better. They are based on consumer credit history and reveal the risk level on loan defaults. A good credit score is anything higher than 700.

“A low FICO score keep consumers from getting loans to buy a house or car,” said Bill Moak, president/CEO of the BBB of Mississippi.

“Today, many landlords, utility services and employers are now relying on these scores as well. This means that a bad score can keep someone from getting a good insurance rate, an apartment, or even a job.”

According to Fair Isaac, the new FICO 08 is more forgiving of minor slip-ups and will more accurately predict a borrower’s risk of defaulting on payment obligations.

Factors included in the FICO score are: financial history, indebtedness, length of credit history, and number of open lines of credit. The new FICO 08 changes the weight for these factors.

“Consumers may see their scores go down if they have multiple delinquent accounts. Their scores may go up if they have only one delinquent account and demonstrate successful repayment on other debts,” Moak said.

Due to the constant increase in Identity Theft, the BBB recommends that consumers check their credit report and score periodically to be sure that they accurately reflect their credit record.

With the nation´s rampant foreclosure rate being called the worst since the Great Depression and California´s foreclosure ranking the second highest in the country according to RealtyTrac.com, I am asked many questions regarding the trials of foreclosure. Not surprisingly many of these questions are on the subject of short sales.

Q: “…how long after a short sale before I can get financing?”

A: The short answer: 18-24 months.

Why?

Since a short sale is usually negotiated because of payment default or foreclosure proceedings an important issue to be addressed is your credit score (FICO). A short sale definitely harms your personal credit far less than any other foreclosure solution such as a Deed in Lieu but your home loan payments were at the very least behind even if the lender had not yet issued a Notice of Default.

Interest rates are FICO driven meaning that the higher your credit score the lower the interest rate you receive on financing of a home and the lower the payments will be.

Ideally you´ll want to raise your credit score to at least 620 and 680 or higher is better.

Tips to Help You Get There

Get a free copy of your credit report at annualcreditreport.com and scrutinize it for any errors or discrepancies. Contact the reporting creditor to find out how to correct any misinformation.

Make all payments, even your rent, cell phone, utilities, etc., on time. Lenders typically don´t want to see any late payments in the past 12-24 months so you have time to plan. Major credit lines such as those for your car loan are vital but when rebuilding credit (or in the case of no credit history) simple everyday payments can come into play.

Pay off any collection accounts. The account balances can often be negotiated down by contacting the creditor and a lower amount accepted as total payment on the account. A charged off account is also considered an open account so be sure that if you have any charge offs negotiate a settlement!

Lenders considering new loans won´t make a loan when there are open collection accounts.

Keep the balance of any credit card paid down. Credit cards can become voracious monsters very easily. Use caution here. You want to keep the balance on each credit card to 25-30% of the approved credit line. In other words, if your credit line is $5,000 your balance shouldn´t be more than $1,250-$1,500. This takes in the point of your borrowing power.

A couple of don´ts: 1) Don´t close unused credit card accounts as a quick solution to raise your credit score—there is no quick fix, 2) Don´t apply for new accounts you don´t need simply to increase you borrowing power.

Should you find yourself struggling you can contact the non-profit Consumer Credit Counseling Services (National Foundation for Credit Counseling) at 1-800-388-2227 or on the web at www.debtadvice.org

Credit scores and reports are important, and not just for home buyers. Folks standing in line July 11 to buy a new iPhone will find they won’t be able to activate it without paying AT&T a $250 deposit if they fail their in-store credit check.

Landlords, employers, banks, car dealers and insurance companies all want to know what kind of borrower you are before they do business with you.

But that doesn’t mean you need to go overboard, like some monitoring firms would have you believe. Watch their commercials, and you get the feeling that if you don’t stay home from work to watch your credit file 24/7, you’ll face financial ruin and lose your identity, too. It shouldn’t come as a shock that many of those services also charge fees for information that costs nothing elsewhere.

There are easy, genuinely free ways to stay on top of your credit files and use them to save money.

Here’s what you need to know now to do that.

– Understand the difference between your credit report and your credit score. Your credit report is the record of all of your credit transactions: your loans and credit cards, your credit limits and your payment history. Your score is a single number that is derived by feeding all of the data from your credit report through a complex algorithm.

– You should check your credit report at least once a year to make sure there are no mistakes in it. Credit reports are created and kept by three separate credit reporting agencies: TransUnion, Equifax and Experian. All three should have the same facts on their reports. You can get one free report from each of them every year by going to the website annualcreditreport.com. You may want to monitor your credit report more often than that, if you are getting ready to buy a house or take out a large loan for some other purpose.

– Between now and September 24, you can also sign up for six months of free credit monitoring from TransUnion at the website www.listclassaction.com/. This is part of the settlement of a large class-action suit against the company.

– Most lenders use your credit score in deciding how worthy you are. And they charge people with low scores more. The most widely used score was developed by Fair Isaac Corp. and is called a FICO score. But each of the three agencies are producing their own scores and have also banded together to create a fourth common score, called a VantageScore. These scores matter, in real dollars. For example, if you have a solidly high FICO score over 720, you’ll pay 6.3 percent for a 30-year loan. That would put the monthly payment on a $250,000 loan at $1,548. If your FICO score is a middling 670 instead, you’d get a rate of 8.11 percent, and pay $1,855 a month. Over the life of the loan, you’d pay almost $370,000 more in interest, according to Fair Isaac.

– Many websites are starting to make credit scores available for free, though none are giving away FICO scores right now. Some sites to check are creditkarma.com, eloan.com, and prosper.com. For a fee, you can get your FICO score at myfico.com. If you’re satisfied that your credit report is accurate and you have no big plans to borrow anytime soon, you don’t really have to worry about looking up your score.

– You can improve your score. The best way to do that is to build a history of paying your bills on time. You can push up the score a little bit by raising the credit limits on your cards but not borrowing all the way to the limit, because using a small percentage of your available credit raises your score. You can hurt your score by closing inactive cards or applying for too many cards at once.

– If you intend to buy a house or borrow for a car in a year or so, the time to start checking on all of this is now. With one year of good behavior, you can bring a weak credit score up into more solid ground. And pay less for that loan.

Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.