debt

Don't be a credit killer!

The Void 
The Void refers to the lack of history in your credit file. This desolate state causes lenders to wonder whether they should give you credit. They're not sure because they have no evidence of how responsible you have been in the past. Having no credit is considered about as badly as having poor credit. Ten percent of your credit score involves the type of credit you've used.

Create a good mix of credit such as credit cards, a mortgage and installment loans. Opening a bank account, putting utilities in your name, getting a department store credit card and having a stable residence and job are ways to increase the likelihood of obtaining credit.

The Inquisitor 
As an Inquisitor, you can cripple your account if you aren't aware of the effect of account inquiries. A credit inquiry occurs whenever someone wants to look at your credit file.

"People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports," according to Fair Isaac Corp.'s Web site, myfico.com.

Rate shopping for a car loan, a mortgage or a credit card can hurt your credit if you don't do it properly. Lenders you approach ask credit bureaus for a copy of your report for review. This request shows up on the credit report as a "hard inquiry," which affects the FICO credit score.

Breaking down credit scores
Source: myFICO.com

Inquiries fall within the "new credit" category, which makes up 10 percent of the score. It stays on your report for two years but is used in calculating your credit score only for the first year that it's on your report. Minimize the impact by rate shopping within a short period of time, such as a couple of weeks. According to myfico.com, multiple inquiries from auto or mortgage lenders in a short period of time are typically seen as one inquiry and have little impact on your score.

Prospective employers interested in how you handle responsibility, companies that want to offer pre-approved credit cards, and even you may ask to see your credit report. These queries aren't as bad because they are considered "soft" and don't count against the credit score.

The Closer 
The Closer is trying to improve a credit situation, but his approach may not be the best move for that purpose.

Closing old and unused accounts could shorten the length of your credit history, which makes up 15 percent of the credit score. It also affects the credit utilization ratio, which is the amount of credit you're using relative to your available credit. Closing an account makes your ratio go up because closing the account drops your total available credit while not reducing the amount of credit you're using.

Also, watch your debts, because "amounts owed" account for 30 percent of the score.

Instead of closing the account, gradually pay down debts, keeping balances below 30 percent of the available limit, and space closures over time.

The Relinquisher 
The Relinquisher turns his or her credit over to someone else with a shady or non-existent credit history.

That occurs when they co-sign for someone else's loan or credit card, and the gesture is rewarded by that individual not making the payments. Co-signing is risky to credit scores and to relationships because if the borrower makes late payments, it can tank the co-signer's credit quickly.

Instead of co-signing, suggest that the borrower try a secured credit card, take out a small loan or get a gas card to help them build or rebuild their credit.

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