The Three C's of Credit

Before you consider applying for credit, make sure you understand what creditors look for when giving an approval for a loan or line of credit.

Creditors are looking for the three C?s of credit: capacity, character, and collateral.

Capacity
A creditor will view capacity as to how you are going to repay the loan. They want to know what your monthly income is and any bonuses you may receive. They want to know what your expenses are, how many dependents you have, and if you are paying child support and/or alimony.

One of the most important features about capacity is the debt to income ratio. The debt-to-income ratio is calculated by totaling all your monthly debt (for example, car payments, rent or mortgage, credit card payments), including the monthly payment for the item you are trying to finance. This number is then divided by your income. Most banks will not lend if the ratio is over 50 percent.

The following is an example of how the debt to income ratio is calculated:

Total Gross Monthly Income: $4,000
Total Monthly Debt, Including Proposed Loan Payment: $1,600
Debt to Income Ratio: $1,600/$4,000 = 40%

Character
To determine your character, a creditor will look at your credit history and paying habits from information they get through a credit-reporting agency such as Experian, TransUnion, or Equifax. Many creditors subscribe to a special service that the credit-reporting agency offers to receive a credit score. This is known as the Fair Isaac Score (FICO). If your credit score is too low, you will be denied credit.

Collateral
A creditor also wants to know what collateral or assets you have other than your income. This would include a savings account, investments, or property. By having assets, the creditor feels more secure because they can be liquidated if you fall into financial difficulties.

Credit grantors look at many factors to determine whether or not they will give an approval. Some of theses factors include, length of employment, previous credit, length of residency, open accounts and if you have a checking and/or savings account. If all the factors are favorable you should be approved. If not, your application may be denied.

There are several reasons an application could be denied. One reason for a denial could be an incomplete and illegible application. Other reasons may be a negative credit report, excessive inquiries, overextension, an unlisted telephone number, insufficient income for the amount requested, and too short a period of employment. Whatever the reason, the creditor must notify you within 30 days of the denial by mail to let you know the reason.

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About the Author

Deborah McNaughton is an author and credit expert. She is founder of Financial Victory Institute, which specializes in financial education. Deborah has programs to train individuals to become credit consultants and teach financial seminars. Visit http://www.financialvictory.com or call 714-993-1171.

10 Steps To Tackling Your Credit Card Debt Problem

First of all, you can take comfort in the fact that you are not the only one fighting credit card debt problems. There are hordes of people who have even worse credit card debt problems when compared to yours; all of them seeking an effective way to eliminate the credit card debt. So what is the solution to your credit card debt problem?

Well, the solution really is to smash the credit card debt with full force and eliminate it completely. Now how do you do that?

There are many ways in which you can solve your credit card debt problem. Different people suggest different ways of tackling it. However, here is a simple step by step account of what you can do to get rid of your credit card debt.

1. Take stock of the situation i.e. draw up a table with the following fields – Credit card name, balance, payment due day (the day of the month by which you are required to make payment of your credit card bill), APR, reward points earned, redemption offers applicable for your reward points balance, remarks.

2. Fill the table up with data from your various credit cards.

3. Check if any reward points that you may have accumulated can be used to make partial payments or cover any kind of fees or even if the points can be bartered for something you need.(spending less means preventing the credit card debt problem from getting worse).

4. If you have any available credit on any of your credit cards it would worth your time to call those credit card companies and check on the availability of lower interest rate balance transfers. If they offer reduced interest rate balance transfers, it would be wise to transfer any balance of a higher interest rate credit card.

5. You may also consider applying for another credit card (I know, I know, your trying to eliminate your credit card debt, not create more.) Hear me out first. If you can get a lower interest rate balance transfer credit card that you may be able to consolidate one or more of your credit cards into one, this would allow you to do two things: first you can eliminate at least one (hopefully more) of your higher interest rate cards. Second, it will cause your required monthly payment to be lower allowing you to pay a larger amount towards your principal, not just your interest.

6. First eliminate debt on the credit card contributing the most to your credit card debt problem i.e. highest APR (interest rate) and highest balance. Start with one. Pay the minimum required monthly payment on all the other credit card while applying the most money you can afford to the credit card first on your list to pay off. This will allow you to reduce the balance faster and to break the cycle of the never ending balance payoff.

7. Once you have eliminated the debt from one credit card, do yourself a favor and destroy it. In todays day and age it is almost a necessity to have a credit card, but you only need one and if you have to use it, you should pay the balance off completely every month.

8. Practice controlled and healthy spending habits (after all you are looking to get rid of credit card debt problem for good and not just temporarily.

9. Look for alternative means of adding to your income (more money means earlier termination of credit card debt.)

10. See your debt reduce with time and celebrate the day when you finally put an end to your credit card debt problem.

Remember,it is ultimately up to you to make a change in the way you use and percieve credit cards and credit card debt. You CAN take control of your financial future and put and end to credit card debt forever.









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About the Author

At http://www.creditcardrecap.com it is our mission to not only provide you with the information you need to accurately compare and apply for a variety of quality credit cards, but also provide online resources for all of your credit card matters. For more credit card information and online resources, simply go to http://www.creditcardrecap.com