Did
you know there is no standard definition for 'excellent
credit'? You see, 'excellent credit' is a subjective
term. Its definition varies from situation to situation,
as well as from lender to lender. You may not think
you have excellent credit, but even if your credit
score is in the 600's, you may still be considered
to have an overall excellent credit profile. According
to some lenders, you are eligible for low rates on
loans and credit cards with credit scores in the 600's.
There are several variables that contribute to your
credit profile that may make lenders view it as 'excellent'.
Even
without a standard credit score definition that all
lenders adhere to that defines 'excellent credit',
one thing is true across the board: having an excellent
credit profile can save you a lot of money and headache
when applying for loans. With excellent credit, you
are eligible to receive: low
loan rates, low
credit card rates, no-documentation loans (saving
you loads of time during the loan process), 0% interest
rate loan promotions, $0 down payment loans, low fixed
interest rates, and quick loan closings which allow
you to get your loan funds fast.
Whether
you think you have excellent credit, average credit,
or bad credit, this is how you can analyze your overall
credit profile in five steps:
1.
Obtain all three
credit reports to acquire your credit scores.
(This is free.) You need to be aware of the credit
history and credit score that is currently contained
in each of the three credit bureaus: TransUnion, Equifax,
and Experian. Although there is no standard definition
for excellent credit, I can say that in my experience
in the financial industry I have found a credit score
of 680 or higher to be desirable. Of course the higher
the score the better the credit profile, but I have
definitely seen many cases where consumers with credit
scores of 680, along with solid savings accounts and
positive cash flow, have been able to take advantage
of low loan rates and affordable payments because
of their 'excellent credit' status.
2.
Locate any erroneous accounts or suspicious activity
in your credit profile and correct immediately. Contact
the credit bureaus in writing, and dispute any errors.
By law, creditors must prove the accuracy of the information
contained in your credit file within 30 days of a
written dispute. If they cannot do so, they must remove
the inaccurate data.
3.
Define the types of accounts you have in your profile.
Lenders look at the kinds of loans you have accumulated
over the years as well as your repayment history.
For example, excellent credit profiles contain a variety
of types of debt. A combination of fixed payment installment
loans (such as mortgages, auto, or student loans)
and revolving lines of credit (such as home equity
loans or credit cards) is considered favorable. Having
different loan types at the same time indicates to
lenders that you can handle both fixed loan payments
and variable loan payments simultaneously, while maintaining
a positive monthly cash flow.
4.
Analyze your repayment history and available credit.
What is your loan repayment pattern over the last
24 months and how much credit do you have available?
Generally, individuals with excellent credit profiles
have very few or no delinquent payments in their credit
history over the course of several years. Delinquent
payments are defined as being 30 days or more past
due. Additionally, those with excellent credit are
only using a percentage of their available credit.
Keeping credit account balances low shows you are
not dependent on the credit that you are allotted.
As a rule of thumb, try not to exceed 40% of your
available credit limit on revolving lines of credit
in order to achieve an excellent credit profile.
5.
Calculate your debt to income ratio (also called DTI).
Your debt to income ratio is simply your
total monthly debt payments divided by your total
net income. For example, your monthly debt payments
total $1000/month. After taxes and withholdings, you
bring home $2500/month. 1000/2500 = .40 or 40%. Your
DTI would be 40%. Again, because lender standards
vary, it is hard to say what an excellent credit DTI
is, but in my experience I have found that individuals
with excellent credit profiles to have a DTI of 40%
or less. I have to say though, I have seen lots of
cases where individuals with a DTI of 60%, along with
a substantial savings account and a high FICO score,
were considered an excellent credit candidate and
were therefore eligible for money saving promotions
reserved for those with excellent credit.
After
completing these steps, you should have a general
idea of how your credit profile will be viewed as
you apply for a personal loan,
home loan or
credit
card.
Just
remember, for the best rates and terms you can get
(especially those $0 down and 0% interest promotions),
make sure you make all credit and loan payments on
time, keep your debt to income ratio as low as possible,
maintain a savings account, keep a positive monthly
cash flow, and secure your credit profile by keeping
it safe from identity
theft.
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you need legitimate
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