What is FICO

The various credit bureaus can use different methods at arriving at your score and this is why you can sometimes have more luck getting credit from one lending institution than another.

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The industry standard is a system called FICO. FICO stands for Fair Isaac Corporation Company. FICO is software for calculating credit score and is regarded as the leader in the calculation of credit score within the finance industry.

The fact that it is commonly accepted as the most suitable way to rate a person's credit score is why many people will talk of FICO scores or FICO ratings rather than calling them credit scores.
The software that is used to calculate credit score, whether it is FICO or other software uses research and mathematics to decide upon the rating.

This information is important to you as it will help you to have a better understanding of what you can do to give your credit score a boost in its rating.

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The best way to explain how credit score is calculated is to compare it to insurance premiums where you will pay a higher premium based on various factors in your life.

With insurance those factors will be your age, your occupation, your health and even your choice of sport where dangerous activities will make you a higher risk for the insurance company.

The insurance company can then look at their research data and calculate your risk.
Obviously older people and those participating in dangerous activities will be a higher risk and those people will be expected to pay higher premiums.

Credit bureaus have similar research data that relates to peoples ability to repay debt in certain circumstances, and it is this data that they will use when they input your information to decide whether they will lend you money and if so at what interest rates.

IMPROVING YOUR CREDIT HISTORY

Improving your credit history is basically about doing the opposite to that which caused you to get a bad credit history in the first place.

You got a bad credit history by not making good the debt that you owed to other people either on late payments or failure to make the payments at all.

This bad credit history remains in your name for 7 1/2 years and any time you go to borrow money, rent accommodation or virtually anything else that involves the need to check your credit standing you are going to be at a disadvantage.

So what can you do to make up for your past errors?

Simply by doing the opposite to what you did in the past and borrowing small amounts of money but ensuring that you pay them back on time all the time to start to build up a good credit history will begin to compensate for your past efforts.


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When many people get on top of their debt problems they are very reluctant to go back to borrowing again however in order to get your own house and a mortgage that will be necessary in order to buy it, you need to start rebuilding your credit history and unfortunately the only way that that can be done is by borrowing and proving that you have changed and can meet your responsibilities to the financers.

You don't have to borrow a lot of money and in fact it is better to do smaller amounts at various different places so you get good credit reports from a wider range of people.

Credit cards are the easiest way to get started rebuilding your past and then buying the occasional item provided it is a necessity and at low cost on hire purchase where you make monthly payments over a set period of time and don't miss any payments as the next step towards your goal of getting lending institutions the confidence to work with you further.

I must say that I was very reluctant at first to endorse any product, but "Life Without Debt" was different because it's based on a proven, step-by-step system.

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Managing a Budget Deficit

If your expenses are greater than your income then you have to contend with a budget deficit and there are only two ways you can deal with this. You can earn more money or you can spend less - it is as simple as that. Unfortunately it is easier said than done some of the time and that's why many people get into debt in the first place by topping up the deficit with money from credit cards and other high interest loans.


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Your budget will help you to focus on areas where you can cut your spending. Obviously you will be looking at luxury items first and those non-essential items that will be easy to eliminate. If you can eliminate your budget deficit by getting rid of these non-essential items then you are in luck however it might not be quite that easy for you to reduce your spending enough to make up the deficit.

If that is the case then you will have to go back over your budget again and see the areas where you can cut your spending to try to close the gap between income and expenditure.

If you are putting a percentage of your income aside a regular basis for some type of saving scheme then you might need to consider canceling that saving until you have managed to reduce your debt to such an extent that you are able to cover your costs with your income.

Once all areas of cost-cutting have been exhausted you are left with the only other alternative of increasing your income and you will need to look at whether you're able to increase your hours of work or possibly even get a second job to bring in enough additional income to cover your expenses.

One way or another unless this budget deficit is eliminated you will be destined to continue accumulating debt and the more you do that the more difficult it will be to bridge the gap.


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Understanding Debt Better

Not all debt is bad and while you might consider it to be so at the moment when all you can think about is the overwhelming amount of debt that you need to repay and the problems that it has caused, you will also need to understand that often it is worthwhile having debt.

For a start having debt on appreciating assets such as a mortgage on your home can be a good thing because the value of your house will be increasing at a rate that is far greater than the amount of money that you could save and quite possibly you would never be able to save the amount of money required to purchase a house in the first place.

For most people this will be the only type of debt that is worthwhile having simply because the advantages far outweigh the cost of the debt in the form of interest.

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The debt that is incurred for purchasing items that can't be regarded as assets, for example motor vehicles where they are depreciating and you are losing money the longer you own them, can't be regarded as good debt.

Credit cards are one of the biggest causes of financial problems in the country but they too have their uses and in particular when you're trying to rebuild your credit history by taking out smaller amounts of borrowings and paying them back on time all the time.

Getting small amounts of credit card debt and repaying it, can help you to move on to personal loans and then eventually you'll have the opportunity to get a mortgage to purchase a house again even if your past create history has been bad.

So you can see that in the right circumstances there are various reasons why debt can help you have a more fruitful life.

Racking up restaurant bills and purchases of the latest fashion items on your credit card can never be regarded as good debt in anyone's books.


Scott Stephens shows you how to get out of debt fast without filing bankruptcy in his
”ULTIMATE DEBT GUIDE”

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Take Care of the Most Important Debts

You need to prioritize your debt repayment and ensure that the most important debts are taken care of first.

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”ULTIMATE DEBT GUIDE”

The importance of the debt is determined by the impact that it can have on your life both now and in the future so clearing past due taxes would be one of the first debts that you would have to look at due to the penalties and compounding interest that you will have to pay and the fact that the IRS has so many powers to seize assets and make life very difficult for you.

A mortgage is another debt that needs to take top priority as losing your house can impact on your ability to pay all your other debts and also make it difficult for you to find accommodation elsewhere. If you don't have your own home then you need to ensure that your rent and utility bills are kept up-to-date so you have a roof over your head and are able to live in suitable conditions to be able to work your way through your money problems.

Your budget will give you a clear indication of the total amount of debt that is owing to others and from there you can set your priority list where you can start working with the people you owe money to and sort out payment plans with your creditors and your own steps to clear your debt.

Medical bills and court-ordered child support debt are also high on the priority list as failure to pay these can result in drastic action being taken that will once again make it difficult for you to work your way through your other debts.

Car loan repayments are a priority because car finance companies will quickly repossess your car if you fall behind with the payments and this can impact on so many other areas of your life such as your ability to get to your place of employment.

Don't be forced into paying minor debts at the hands of debt collectors if you haven't covered these priority debts first.

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Managing Debt Collectors

Debt collectors have a job to do and they are paid accordingly as a percentage of the amount of money that they recover from you. Obviously it is in their best interest to recover as much money as possible and many of them will resort to all sorts of tactics in order to extract funds from you whether you can afford it or not.

Debt collectors are also aware that the majority of people don't know the laws as they stand with their powers of collection and the rights you have that cannot be violated.

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They are only allowed to contact you between the hours of 8am and 9 pm and if you send them a written letter not to contact you again in relation to a particular debt they have to abide by that request and can only contact you again to inform you of any further action they will take in the recovery of the debt.

They cannot contact you at your place of employment if you inform them that this is not allowed and they are not allowed to contact you excessively as this is classed as harassment. Obscene or insulting language is also not allowed although many debt collectors will use such tactic to intimidate people and get them to pay more than they can comfortably afford.

Many debt collectors will buy your bad debt off your creditor and then it is up to them to recover their money from you so they can get quite aggressive in their recoveries. If you are in a position where you are expecting a debt collector, know your rights and don't allow them to 'bully' you into making a payment that you can't afford.


Sometimes you will be able to discuss an arrangement with them to pay off the debt and this is obviously the best solution as they will get their money eventually and you will be able to pay it back at a rate that your budget has determined most suitable.

Always try to work through your money problems with those involved in an amiable manner as this is usually where you get the best deals that will keep both parties happy.

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Making the Right Moves when Debt is Excessive

While the budget will help you to manage your debt and to begin eliminating outstanding debt if you have excessive amounts of debt then you are going to need to take a little more action to reduce the impact this will have on your life, your credit rating and your future.

If you have a lot of creditors or a lot of debt owing to creditors then you will probably need to contact them and try to work out some deals were you can pay them off in installments over a period of time that is manageable.

If you're already paying installments then they might need adjusting so you can handle them more easily.

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Your budget should have the details of all of your outstanding debts and the amounts that you should be paying. With this information you can work out accurately how much you can afford to pay and then present that to your creditors to see that they are happy to allow payments at a reduced rate if necessary.

Expect them to try to pressure you into higher payments but if you let them know that your budget only allows for a specific amount to be paid per period then more often than not they will agree to it knowing that the debt will get cleared in that manner.

Sometimes it is necessary to borrow more money to pay off existing debt and while you will be reluctant to borrow money it can be beneficial where consolidation of debt reduces costs in the form of penalties and interest. You should only borrow if you can find money at a lower interest rate than the debt that is currently owed.

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You can also get help from good credit counseling agencies that will help you to prepare a budget and negotiate with your creditors to reduce payments.

Often they will give you other advice that will help with the management of your finances and will be invaluable to helping you improve your financial position.

And finally if worst comes to worse and you really can't afford to pay off the excessive amount of debt that you have built up there might be no alternative but to file for bankruptcy. You will need some professional advice as to when and how to do this as it can make the difference between eliminating your debt completely or alternatively giving you three to five years to pay off what is owed.

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Budget to Gain Control

Once you have calculated precisely how much money you owe then it is time to create a budget that will help you to use your income more efficiently by covering all your necessary expenditure and working towards the elimination of your debt.

A budget can be prepared in a book or more effectively online using a program such as Excel.

Now when you prepare your budget you need to take into account everything that you can think of relating to income and expenditure and this budget will need to be updated on a regular basis as more things come to mind when there are changes in your financial position.

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This is why it makes it a lot easier to use a program such as Excel where totals can be added quickly and you will be able to see in a matter of seconds which direction you are going in and whether the steps that you have made have resulted in positive changes towards your financial well-being.

Where you are unsure about specific parts of the budget such as how much money you spend per week on food and other essential items, you will have to make an estimate initially until you are able to take notes the next time you go to the shops and see precisely how much you spend.

Once you get some of these figures you will be able to determine whether you are overspending in particular areas and what you can do about reducing such expense.

Your food shopping is one area where you can save a considerable amount of money because most people don't have any strict limits on their food spending.

Once again changes can only be made if you know precisely what you've been doing in the past and where you can make the changes in the future.

It might mean that you have to completely change the types of foods that you are buying and often the benefit of doing this is you improve your health along the way by buying food that is better for you.

Budgeting is your way to gain control over your finances once again. In fact it is the only way for you to gain control. It is a lot easier than you might expect and once you begin to use a budget you will wonder how you ever managed your finances in the past without having a budget.

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Determining What Your Current Debt Is

The very first thing that you need to do to address your current financial position and reduce and eliminate your debt is to determine exactly what your current debt is.

Now this might seem very obvious and when you ask most people they would probably say that they know how much money they owe but more often than not it comes as a great surprise to them when they sit down with a pen and paper to work out exactly what the current debt actually is.

It is very difficult to remember precisely how much you owe on so many different areas of debt and it is only when you do take account of all the individual debts and add them up that you can actually see the extent of your debt.

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Be prepared for a surprise because that is what happens most often and it will give you a really good picture of why you are struggling to make ends meet each week and why all the income that might seem reasonable isn't enough to cover your outgoings.

So step number one on your debt management program is to address the situation.

It is only after you have done this that you will be able to create a budget that will help you move towards eliminating debt from your life.

You will be able to compare your monthly spending to your monthly income and that will give you the opportunity to see how much is left over if any to start reducing your debt.

When you are making a note of your debt you must ensure that you put down EVERYTHING that you owe even the most minor of debts because at some stage they need to be settled and even small debts that are left unpaid can give you a bad credit rating.

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