Negotiating Debt and Credit

Steps to Improve Your Credit Worthiness

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Lenders use credit scores to help them determine the "credit worthiness" of consumers applying for credit cards.

When negotiating debt or credit, the first thing you need to determine is your credit score. In 2001 Congress passed a law requiring the credit reporting agencies to provide you with your Beacon Fico Credit Score. Previously that number was shared among lenders but not provided to borrowers. Lenders use credit scores to help them determine the "credit worthiness" of consumers applying for credit cards, lines of credit, or loans.

That number is the key factor in determining the APR you will get when you apply for a loan or respond to a credit card offer. It is also a factor in determining how much you can borrow or the limit set on your credit card.

Because of the importance that credit score information gives to companies, banks and lending companies are now not the only ones that use these information. Even mobile phone companies, insurance companies, and private companies also use this information to check on the background of their clients and potential employees and see their borrowing character.

FICO Beacon Credit Scores range between 300 and 850. A credit score is made up of five components:

  • Payment History (35%);

  • Balances Carried (30%),

  • Credit History (15%)

  • Mix of Accounts (10%),

  • Inquiries About Your Credit (10%)

The national average credit score is around 678

There are 3 credit reporting bureaus -- Experian, TransUnion and Equifax -- each provides you a credit score. All three bureaus are likely to have different data so, when checking your credit score, make sure you have all 3 credit reports and credit scores.

Contrary to popular belief, checking your own credit score will not lower your FICO score. If your credit score is over 680 you are considered a "prime borrower" and will be offered a loan with a good APR.

If your credit score if less than 680 you are considered "sub prime" and you will be required to pay a higher APR. If your score is below 550 you will have to pay an extremely high rate, i.e. often over 20%. You know those 0% financing rates car dealers offer? They are only available to people with credit scores above 680.

It is easy to obtain your credit scores online. Annual Credit is the official website maintained by the three major credit bureaus as required by law for consumers to obtain their free annual credit report, as opposed to other sites that advertise "free credit reports" but only provide them if you also sign up for their credit monitoring service for a monthly fee. The only drawback is you are allowed 1 free report from each of the three services once a year.

While this will give you copies of your full credit report from all 3 reporting agencies, it does not give you your credit score. However, creditkarma will. You have to sign up to get it but there is no fee attached. But watch out because there are fees for other services they offer.

We also recommend TransUnion 3-Bureau Credit Monitoring All three credit reporting sites Experian, Equifax and TransUnion offer credit monitoring services. But for several reason, we found TransUnion's True Credit site to be the best including ease of use, cost and services offered. Click here to find out more.

Some states even give you free credit reports within 30 days of being rejected of a credit by a lending institution or when you receive a not so good credit terms because of their credit score. You will have to check applicable state law if you are interested in taking advantage of this.

For more information about negotiating debt, click on any of the links below.

For more information about negotiation, click on any of the links below.

To learn more about other conflict resolution topics, click on any of the links below.

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Negotiating Debt and Credit Scores, Part I

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