Personal Unsecured Debt Consolidation Loans

Unsecured personal debt consolidation loans are an excellent source of credit if you need to consolidate debt. Unlike regular personal loans, unsecured personal loans do not require you to pledge any collateral against the loan. This means that lenders are relying only on your promise to repay the loan according to the terms and conditions that they have established.

Getting a personal unsecured debt consolidation loan, can help you pay off your debt quickly. By eliminating several different payments, and focusing on repaying one loan only, you can significantly reduce your monthly bills.

Qualifying for a Personal Unsecured Debt Consolidation Loan

It is easier than ever to qualify for a personal loan. In some cases, you may even be able to qualify for personal unsecured debt consolidation loans as high as $10,000. Amounts under $1,000 may not even require a credit check.

If your credit is less than perfect, there is no need to fret. Many lenders have become more lenient when it comes to giving personal loans to people who have bad credit. The real nice thing about unsecured personal loans, is that you do not have to be a homeowner to qualify for the loan. For a list of consolidation lenders visit www.abcloanguide.com.

Finding a Personal Unsecured Debt Consolidation Lender

When choosing a lender, it is important to shop around for the best rates and loan terms. Though they have lower rates than credit cards, unsecured personal loans tend to have a higher interest rate than other personal loans. Finding a lender that can offer you a fair rate on your unsecured debt consolidation loan is very important.

View our recommended sources for an Unsecured Debt Consolidation Loan along with information regarding a Personal Debt Consolidation Loan.

To qualify for an unsecured fast cash loan, borrowers with a steady source of are the ones that are considered. Some companies also put a limit on the amount of gross income borrowers must be receiving in their paycheck. Generally, other eligibility criteria consist of an open and active checking account, proof of identity, latest bank statement and proof on income, which can be the latest pay stub.

There are many lending companies available online or otherwise that specialize in small denomination, unsecured, short-term cash advance loans. Usually, they provide fast cash loans in the range of $100 to $1000, which varies by state. In some cases, they may be willing to lend sums as low as fifty dollars or as high as fifteen hundred dollars. These companies also charge a service fee along with the interest applied to the loan amount. However, it is possible to find a lender suited to particular personal needs as the fast cash market is quite competitive. Additionally, these companies are required to comply with the state as well as federal laws.

The main advantage of an unsecured fast cash loan is that the borrowers’ assets are never at risk. They can get instant cash with minimum documentation, conveniently into their checking accounts, though with a high interest rate.

Fast Cash provides detailed information on fast cash, bad credit fast cash, fast cash advance, fast cash leasing and more. Fast Cash is affiliated with Online Advance Cash Requirements.

The FICO score will be used to evaluate your qualification for a particular credit line or loan program and to calculate the applicable interest rate. Depending on their specific institutional needs, some lenders may use the highest FICO score or the middle score, or only one FICO credit score if the credit transaction is for a consumer purchase.

For instance, if you were to apply for a house credit card at a department store, they would run your credit profile (with your permission, of course) to obtain a FICO score. On the assumption that the store reports to only one of the three credit bureaus – as most department stores tend to do -, then the inquiry will go only to that bureau. The store would make its decision based on only one bureau’s information, and by using only the one FICO score.

The system works differently for mortgage credit. Banks report to all three credit bureaus (Experian, Equifax and Trans Union), so they would get three different FICO scores, calculated on three credit reports that the credit bureaus sent for scoring by FICO. Since there are three FICO scores, banks generally will use the middle or average FICO score. Depending on the type of financing you are seeking, whether it is for a new car, appliances, a credit card, or a home mortgage, your FICO score makes up a significant portion of the decision-making process. The FICO score will determine the premium rates you pay for insurance and the interest rate available to you on a loan.

Your FICO score is usually a composite of the following:

35% of your FICO score is payment history, and the key items include frequency, severity, and most recent occurrences of non-payment — which means that all late or missed payments will hurt your FICO credit score, but missed payments of more recent dates will have bigger effect;

30% of the FICO score is credit utilization, and estimates the balance of credit accounts in relation to the maximum credit available, with revolving credit lines (usually, credit card accounts) being the most significant;

15% of FICO scores cover credit history, the number of years credit has been established (the longer, the better; and one trade credit line for 5 years will affect the FICO credit score better than 2 trade lines for 6 months);

10% of the FICO score involves type of credit, which will monitor the mix of revolving credit inquiries, but will not include inquiries with no finance rating (as an inquiry from your employer, for instance).

As mentioned earlier, there are three FICO scores developed by the Fair Isaac Company – one each from the three major credit bureaus. Experian has the Experian/Fair Isaac Risk Model; Equifax has Beacon; and, Trans Union has Empirica. Consumers are likely to have a different rating with each agency, because although they all use the FICO model, each credit reporting bureau has its own set of reporting companies and there may be variations in the credit information that they send for calculation of FICO score.

There are other types of FICO scores:

• Application Risk Score – In this set-up, the lender uses a scoring system that includes a FICO score but also considers information extracted directly from your credit application.
• Customer Risk Score – Also called “behavior scores”; here, a lender may use the scores to make credit decisions on its current customers; this score uses the FICO score and also information on your payment history with that lender.

The range on your FICO score is from 300 to above 850 and would suggest a credit profile as follows:

FICO score 720 and above: This is a very good FICO score, and it suggests that the risk of default on your credit is very low. If the lender should find any exceptions in your credit report, these will easily be waived and set aside; and if there are any weaknesses in underwriting your credit, your high FICO credit score favorably compensates for that weakness.

FICO score 660 to 719: This is also a good FICO score, and suggests that your risk of default is low. This FICO credit score indicates that your credit history is acceptable.

FICO score 620 to 659: This FICO credit score represents a degree of risk. You can qualify for 100% financing, but certain conditions may be included in the credit agreement. The credit underwriter will more than likely consider you, but will investigate further to check whether you are: recently self-employed; have high loan to value ratios; have low cash reserves; exceeding normal debt to income ratios; staying in multiple dwelling unit properties.

FICO Scores below 630: Anything below 630 is a really bad FICO score. Your risk of default is very high, and you will need to present strong compensating factors to minimize credit risk before the underwriter would consider approving a loan. Some lenders may be willing to arrange 100% financing.

FICO score between 619 to 585: The underwriter can consider approving a loan but that depends on the credit issues, and may also consider an applicant with no previous delinquency and lack sufficient credit. Lenders are more likely to see mortgage delinquencies if they loan money to a consumer with a FICO score below 620.

FICO score between 584 to 500: You will have to explain your credit history in writing, and will need to pay off some of your debts and other payables; the underwriter may still consider you acceptable but the high risk factors should not be layered.

FICO score below 500: There may some serious issues outside your control that caused the setbacks. There are individuals who do not care so much about what happens to their credit. Perhaps this is what we should call Bad Credit. This does not mean the world has ended, though, and there is still hope.

The moment your credit report changes, your FICO scores will change as well. Your FICO credit score does not change from one month to the next at random, unless there has been a late recorded payment or an adverse report. While a late payment, collection or bankruptcy can be very damaging and will immediately lower your FICO scores, it takes time before you can raise your FICO scores. It is good to get in the habit of checking your credit profile every 3 to 6 months.

Your credit report must contain at least one trade line over a six-month period in order for a FICO score to be generated, and must have one trade line that has been updated in the last six months also. This will insure that there is enough information — and enough recent information — to calculate a FICO score.

Your FICO credit score is meant to be a measure of your creditworthiness as a borrower. In the mortgage industry, mortgage products change constantly, so if you manage your credit well you will almost certainly qualify for an advantageous home refinancing- or home purchase program. In the case of revolving credit lines, your account is reviewed periodically, and if you manage it well, you will likely be given more perks and privileges.

Credit-Wisdom.com Provides Expert opinions and reviews to help you Compare and Apply for a Credit Card – Compare Credit Card Offers with Credit-Wisdom.com – Unraveling the best in Personal and Business Credit Cards.

1. Your report does not show real estate loans – this was incorrect, I have had a mortgage for the past 7 years.
2. Your report shows that available credit across your open revolving accounts is too low – I only have one credit card with a limit of $3,000. They are telling me that if I had more credit cards my score would be higher.
3. Your report shows that the ratio of balances to credit limits across your open revolving accounts is too high – My balance on my credit card was approximately $900 which is only 30% of the credit limit which is the suggested balance that consumers should have on their credit cards.
4. Your report shows that the time since your oldest revolving account is too short. – Wrong. I have one revolving account, my credit card which I have had for the past 10 years.
5. Your report shows one or more inquiries on file – I had one inquiry in June 2005. One inquiry in February 2006 and one in October 2006. Inquiries should be obtained no more than twice a year unless you are doing comparison shopping. I am being penalized because I had two inquiries within one year.
Well, needless to say, I wrote each credit bureau and disputed all the reasons they gave me. I received two responses back and am waiting for the last response. After I receive it I will order a copy of my credit report again to see if my scores have increased. I have struggled to find out how one obtains an 800 FICO credit score or higher. From the looks of things it doesn’t seem like that is possible anymore. Whether you have good or bad credit, the credit bureaus will find ways to make sure your credit score is not as high as it can be.

I advise everyone whether you have bad credit or good credit to order a copy of your credit report once a year, read every single line on your credit report and read all of the information provided along with your credit report. Make sure everything listed on your credit report is accurate. Even a few points on your credit score can make the difference between getting approved or getting declined and we all need those extra points. Good luck!

Harrine Freeman is a speaker, personal finance expert and the author of, “How to Get Out of Debt: Get an “A” Credit Rating for Free Using the System I’ve Used Successfully with Thousands of Clients.

She is the CEO of H.E. Freeman Enterprises, a credit repair and personal finance services company. She is a member of the American Association of Daily Money Managers, SPAWN, Toastmasters, AAUW, National Association of Women Writers and the Women Network. For more information on how to get out of debt or to buy her book please visit http://www.hefreemanenterprises.com

Your Credit Score is so important these days, that in order to just get job, you a had better of managed your Credit Score properly. Most institutions now look at your score as glimpse into how responsible of a person you might be. Your Credit Score typically ranges from 380 being extremely bad; to 820 being the best. The Bureaus all have a scoring system that dictates your credit worthiness. Whether you have revolving credit, or installment loans, it all determines your creditworthiness with all three bureaus. Your credit score could drop if you charge your credit cards are over 30% of the granted credit line. Your Credit Score will drop if you close out good credit, that has no balance owed. If you are late on a obligation, your Credit Score will suffer usallly a 20 point reduction, which by the way is a extremely big drop. This kind of drop could mean the difference of getting the best rate on a mortgage, or even getting the new job you worked so hard to get. Each of the Bureaus and there are three, Experian, Equifax, and Trans Union, all score your Credit based on your Credit History. Your Credit Score is so important these days that you need to know what it is with all Three Bureaus.

Your Credit Report, is what all institutions look at when it comes to applying for a laon, credit card, mortgage, insurance, or even a job as well. As a consumer you need to know what is on your Credit Report. When accessing your Credeit Report, you need to make sure you access a Tri Merge Report from all three Bureaus, and with all three of your scores. This is what most everyone looks at. If you are going get your credit report this is exactly what you need. You need to know what they are looking at. annualcreditreport.com offers a credit report, but what they fail to mention is you don’t get your scores. Your credit report is useless if you dont get your credit scores from all three bureaus. Your Credit Report will show what all your creditors have to say about you in regards to your history on all your obligations that involve borrowed money. It will give a snap shot for the last 7 years. So make sure you pay everything on time, and don’t allow anything to go to collection.

Your Credit Scores:

The credit scoring software is somewhat similar, but there are different names for each of the agencies.

For example:

Equifax is “Beacon”
Trans Union is FICO Classic
Experian is FICO Risk Model
The general scoring range for these models is as such:

• 780-850 – Low Risk
• 740-780 – Medium -Low Risk
• 690-740- Medium Risk
• 620-690- Medium High Risk
• 620 and Below – High Risk or “Sub-Prime.”

Like any recipe that is top knoch, the precise formula that are used for calculating various kinds of credit scores for credit reports are well guarded trade secrets. Nonetheless, Fair Isaac has released enough information to give very general ideas of how scores are calculated.

Remember the score is calculated by analyzing the entire credit information in the credit report, and the various factors that make up the whole. No singular piece of information or factor by itself determines your credit score.

Factor 1: Payment History (35%)
Factor 2: Amount Owed—– Extent of Indebtedness (30%)
Factor 3: Length of Credit History——- The Longer, the Better (15%)
Factor 4: How Much New Credit? (10%)
Factor 5: Type of Credit (10%)

With all of this being said, go to the top resource in the nation for your Credit Report, http://www.my720fico.com , this resource was created by lenders that understand the need for the correct information out there.

FICO scores range from 300 to 850, the higher the better. The majority of scores are in the levels of 600-700. The desirable ones are 720 and higher. FICO scores are designed to measure the risk of delinquency by considering several past and present issues, such as the length of credit history, punctuality of payment, current debt including tax liens and money owed as a result of a court judgment, recent searches by the consumer to obtain credit, and the amount of credit received up to date. The exact formula for obtaining the FICO scores, however, is held secret and–it beats me, but–this conduct is accepted by the Federal Trade Commission.

Three nationwide companies, Experian, Equifax, and TransUnion, use the FICO scores for credit reporting. All three of these companies are required by law to provide the consumer—you—with a free credit report every twelve months.

You might ask: “If we have the FICO scores, then why do we have a credit report? Aren’t FICO scores enough?” A credit report is more than a FICO score. A credit report gives extra information on you, as to where you live and have lived, whether you had a run-in with the law, and if you were sued or filed for bankruptcy. The FICO score, as a general rule, is attached to the end of a credit report.

Your credit report is important. The information in it has to be up to date and correct, because it will be used not only for the purchases you make, but also when you are applying for a job. You need to get your credit score and take measures if the information in it is not correct or has become stale. Consumer reporting companies are required by law to correct anything wrong or inconsistent after they investigate your claims.

To obtain your free credit report, you might consider writing to each one of the three companies (Experian, Equifax, and TransUnion) and getting a separate credit report from each one. Don’t be surprised if you find small differences among these reports because each company does its own calculating in its own way. Getting all three reports is especially necessary if you find something inconsistent in your credit history and you need to correct it with all three of them.

If you feel your credit history is good, the best way to get your free credit report is getting a form from Annual Credit Report Request Service (http://ftc.gov/credit), and filling and sending it to P.O. Box 105281, Atlanta, GA 30348-5281; or if you wish, you can get it online from annualcreditreport.com.

Do not, at any time, believe in the companies or online sites that promise to get you your free credit report. Most of them eventually ask for fees and start charging your credit cards, because you have accepted their services and they have your data in their hands.

Does every lender pay attention to the FICO score? Luckily, not all; although most may. In the beginning, FICO scores had little or nothing to do with mortgage lending. About five or six years ago, however, mortgage lenders realized that there was a certain connection between the negligent behaviors of borrowers and their credit scores.

After a couple of years of heavily relying on the FICO scores, mortgage companies are beginning to change their attitudes on the subject again. Lenders like Fannie Mae and some private mortgage companies do their own investigations as well as taking into account your credit report as a whole.

A few tips before applying for a mortgage:

* Do not leave or change your job, especially if you have worked there for some time and you are not replacing it with a more secure and better paying job.

* Make sure your credit cards are not charged to the max.

* Do not ever be late in paying your existing mortgage. At least, don’t be late for more than a month.

* Discuss and bargain with small lenders (Dept. Stores etc.), businesses, and collection agencies to remove any late payments.

* If you have a federal student loan, seek to remove “default” or “collection” labels from the loan’s history.

* Get into the habit of paying your bills on time.

Joy Cagil is an author on a site for Writers (http://www.Writing.Com/) Her education is in foreign languages and linguistics. In her background are varied subjects such as psychology, mental health, and visual arts. She has been taking courses on money and finance matters during the last couple of years.

If you can’t answer these questions, you have some homework to do — especially if you’re planning to apply for a mortgage loan in the near future.

Here are some step-by-step instructions to help you obtain your credit reports, review them for accuracy, and correct any errors you come across.

Step 1 – Understand how your credit affects you.
When you apply for a home mortgage loan (or some other major purchase), you can be sure your credit will go under the microscope. Mortgage lenders will analyze your credit to find out what risk category you fall into.

When your credit score is high, your risk factor is low. In this scenario,you’ll have a good chance of qualifying for a loan. But when the opposite is true — low credit score and high risk factor — you could have trouble obtaining a loan.

Credit reports are maintained by three credit reporting companies (sometimes called credit bureaus or agencies): Experian, Equifax and TransUnion. Your credit score is based on the information contained in these credit reports. Three agencies, three reports, three credit scores … all about you!

Step 2 – Request copies of your credit report.
According to the Fair Credit Reporting Act (FCRA), you are entitled to one free credit report per year from each of the credit reporting companies — Equifax, Experian, and TransUnion. To request your credit reports from all three companies, visit www.AnnualCreditReport.com, or call 1-877-322-8228.

If you request your report online, you should have access to it immediately. If you request your credit report through the toll-free number, it will be processed and mailed to you within 15 days.

Your credit report will not come with a credit score, so you’ll need to purchase this separately. You can obtain your credit score by visiting www.MyFICO.com. This website is owned by Fair Isaac’s, the organization that converts your credit reports into credit scores. Here’s a quote from Fair Isaac’s:

“FICO scores are your credit rating. Most lenders base approval on them. You have three FICO scores, one for each credit bureau, and you can only get all three from myFICO.”

Step 3 – Review your credit reports for errors.
Examine your credit reports closely for any errors or inaccuracies. Make sure your personal information is correct and up to date. Check for loans or lines of credit that aren’t yours, as this could be an indication of credit fraud. Anything at all that seems out of place, write it down for further investigation.

Step 4 – Start the correction process immediately.
Under the Fair Credit Reporting Act (FCRA), credit reporting companies are responsible for correcting inaccurate or incomplete information in your credit report. So don’t hesitate to exercise your rights under this law.

If you only find errors on one report (for example, the one provided by Experian), you only need to contact the company associated with that report. Visit the company’s website to find instructions on how to begin the correction process. By law, each credit reporting company must publish their correction requirements.

You can find these instructions on each company’s website:

* www.experian.com
* www.transunion.com
* www.equifax.com

Tell the company in writing what information is inaccurate. File a copy of your initial request, as well as any subsequent communication (such as their response to you). Start a folder and label it with “credit report” to keep your documents together. Keep the folder secure, as it will obviously contain sensitive information.

Step 5 – Follow up thoroughly.
The credit reporting company will investigate your claim within 30 days of receiving it. But why wait? I recommend contacting them after 10 business days, at least to make sure they’ve received your correction request. Follow up regularly after that. Don’t allow your issue to “slip through the cracks.”

Step 6 – Continue your education.
If you believe your credit report contains errors, educate yourself on the correction process. This article provides a good overview, but an important issue like credit deserves a more complete education.

Websites worth a visit:

The FTC’s Credit Center:
www.ftc.gov/bcp/conline/edcams/credit/index.html

Credit Advice from the Better Business Bureau:
www.bbb.org/Alerts/article.asp?ID=616

Credit Section of About.com:
www.credit.about.com

Credit Learning Center at Home Buying Institute:

http://www.homebuyinginstitute.com/credit.php

* Copyright 2006, Brandon Cornett. You may republish this article if you keep the byline and author’s note, and also leave the hyperlink intact.

Brandon Cornett is the editor of HomeBuyingInstitute.com, the Internet’s largest library of home buying advice. To learn more about credit reports, visit the credit learning center at http://www.homebuyinginstitute.com/credit.php

Fico score ratings are used for most mortgage lending, which means, you need to know what will hurt or help your credit score points. To make it clear, here are some of the most common credit score myths.

* Checking your credit report will hurt your credit score

Checking your own credit report and credit score counts as a soft inquiry and does not go against your score. However, if anyone else like a lender or credit card company is checking your credit report, this is considered a hard inquiry and will generally knock off about 5 credit score points.

The credit score rating system treats multiple inquiries in a 14-day period as just one inquiry. The system ignores all inquiries made within 30 days prior to the day the credit score is computed. So if you want to minimize the damage from credit inquiries, shop for a loan in that short period of time.

* Closing old accounts will improve your credit report score

Sometimes even lenders will tell you to close your old and inactive accounts as a way for improving your credit report score. In most cases, closing old accounts will actually have the opposite effect with the current credit score rating system.

Canceling old credit accounts can actually lower your credit score because it makes your credit history appear shorter. If you want to reduce your levels of available credit, it’s better to reduce or close new accounts instead. Applying for new credit is more likely to lower your score.

* You need to check more than just FICO score rating

If you ever hear this from anyone, consider it a red flag. All of the three major credit reporting bureaus offer FICO credit score ratings using the formula developed by Fair, Isaac. Even though each one gives the scores a different name you only need a fico score rating from the three major credit reporting bureaus.

At Equifax, the FICO score rating is called the Beacon credit score. At TransUnion, it’s called Empirica. At Experian, it’s known as the Experian/Fair, Isaac Risk Model.

The reason each of the three major credit reporting bureaus will have three different scores is because they don’t all share the same data. So when checking your credit report, just make sure it comes from the three major credit reporting bureaus: Experian, Trans Union and Equifax.

Examine your credit reports from all three major credit reporting bureaus before you apply for a big loan like a mortgage. Fix any errors in all three reports before you shop for a loan because it takes time to correct your credit report.

* Credit counseling will hurt your score

The current FICO credit score rating system ignores any reference to credit counseling that may be in your file. The researchers at Fair, Isaac, the company that created the FICO credit scoring rating system, found that people getting credit counseling didn’t default on their debts any more often than anyone else.

However, any late payments you’ve had with creditors will hurt your credit score. Credit counseling can hurt your ability to get a loan because you probably have had trouble paying creditors.

Some lenders will back away if you are in credit counseling. Others may see it differently, but usually will charge you higher interest rates than if you had perfect credit.

The best way to improve your credit report score is paying your bills on time and paying down credit card debt. Check your credit report regularly for any errors and make sure you don’t fall for these common credit score myths.

This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative articles that give you the knowledge to correct your own credit and credit report. 

We all want to have enough money to pay our bills and have enough money left over to live. To accomplish this, we’re expected to manage our money and our credit wisely. Our credit score is a picture of how well we handle our debts. What are the typical purchases and decisions that are affected by a person’s credit score?

• Applying for a job
• Buying a car
• Purchasing a home
• Renting an apartment
• Applying for insurance
• Requesting a credit card
• Opening a bank account

This is only a short list of products and actions that involve a credit score. So, what is this mystery called Credit Scoring? It all starts with your “credit report”.

The three national credit reporting agencies are Equifax, Experian and TransUnion (with smaller ones including ChexSystems). These agencies act as warehouses for your information. Your credit report contains personal data, which includes your name (priors and variations), birth date, addresses, Social Security number, and past and present employers. In addition, creditor history, inquiries or authorized credit checks, relevant public records and collections are also used for identification purposes Your credit report card includes your creditor history detailing your accounts, payments to banks, credit unions, finance companies, mortgage companies, credit card companies, retail stores and other creditors. These credit lines detail if you pay on time, balances, credit limits, burden of debt and how long you have had your account. Other than you, outsiders can access your credit report by making an inquiry. Credit card companies are notorious for making inquiries, and you can see on the credit report who has accessed your account, and when.

Relevant public records and collections are also on your credit report. This may include bankruptcies, foreclosures, tax liens and any collection agency debts you may have incurred. A foreclosed property can remain on your report for as long as seven years, Chapter 7 bankruptcy for 10 years and, depending on your state, unpaid tax liens can remain on your credit report indefinitely.

The industry standard for calculating a credit score was invented by The Fair Isaac Corporation (FICO). The scores generate a three digit number ranging from 300 to 850. Credit scores are used to assess your level of credit risk by predicting whether you will pay back your credit obligations in a timely fashion. The higher your score, the better credit risk you are. Because there are three different credit agencies, consumers who have a credit report have three FICO scores. Creditors use these scores to determine if they are going to grant credit to a consumer and what interest rate they will charge.

Are you 100% confused yet? It might bring some consolation to know that information sharing is getting better. Prior to 2001, consumers did not have access to their credit scores. Now you can get free copies of your credit report once a year from each of the three reporting agencies.

Uncle Credit Score is watching you and constantly adding or deleting information. But you do have influence over your score and the fluctuations that can have instant impact. The following is a sampling of some actions you might take that can affect your score:

• Paying your mortgage on time
• Applying for a credit card
• A late payment or closure of a credit card

Your level of debt and payment performance account for 65% of your FICO score. Lenders can also consider your income, a spouse’s income, an appraisal report from a licensed appraiser and other factors when considering an application for credit. If you are turned down for credit, by law, lenders must advise you of the reason in a rejection letter. There could be an error in your credit report which you can fix and possibly increase your score. All the more reason to check your credit reports regularly.

Kurt Lehman is a financial services expert and writes about ChexSystems banks and problems as well as payday loan debt

When I say, “revolving credit,” I’m referring to any credit account you have where the monthly payment can vary. Credit cards are the most common form of revolving credit.

Of course, “revolving credit” refers to almost everything in your wallet or purse that’s plastic that you can use to buy something. This includes American Express, Discover, MasterCard, or Visa credit cards. This also includes retail store cards such as Macy’s or Target, and gasoline cards.

The exceptions are check cards and debit cards. These little dudes may be plastic and have a MasterCard or Visa logo, but they aren’t really credit cards. They’re more like plastic checks than anything else. Debit cards have nothing to do with your credit scores.

Why your credit reports can show that your credit cards are maxed out when they’re not

In my case, my credit scores were lower than they should have been because I was using my personal credit cards for my business. An easy fix…I just applied for a corporate card and began using only that card for anything business related. (You should do the same if you have a small business.)

A few small business leases were also reporting as revolving accounts on my personal credit reports. Those were simple to resolve by just paying the small amounts off.

Then, I did a quick analysis of my credit reports.

The only way to really discover if revolving credit is lowering your scores is to do a quick analysis of your revolving credit accounts. (I’ll show you how at the end of this newsletter.) That’s how I found the big culprit that was destroying my credit scores…

Beware of home equity lines of credit

When I analyzed my credit reports I got a big surprise…I discovered several of my home equity lines of credit (HELOCs) were being misinterpreted as credit card accounts.

This was fooling the FICO scoring model into thinking that I had an enormous amount of credit card debt. But of course, I didn’t.

What I learned was that HELOC accounts can look exactly like a credit card account on your credit reports.

When I was trained by Fair Isaac Corporation, I got a different story. I was told there are two situations when a HELOC won’t be mistaken as a revolving credit card:

1. When the original amount of the line of credit is more than $50,000
2. If the account has a narrative attached to it (e.g., equity line of credit or real estate)

Even though Fair Isaac claims the above is true, I didn’t find that to be the case with my HELOCs.

It’s bad enough that my HELOCs were being mistaken as credit cards…but to make matters worse…all of my HELOCs were maxed out!When a HELOC is mistaken as a credit card, and it’s maxed out, then it looks like you have a high-limit credit card and you’re using all of its available credit—which lowers your credit scores. Ouch!

My HELOCs were lowering my FICO scores, and it was making it more expensive for me to get personal and business credit. This HELOC issue was a tough nut to crack. We were able to pay off a few of the smaller HELOCs. But we couldn’t afford to pay them all off. So we decided to refinance them into home equity installment loans (HEILs).

What’s better—a HELOC or a HEIL?

There are a couple of important differences between a HELOC and a HEIL. Once you understand the differences you can strategize on what’s best for your credit and financial situation.

Here are the differences:

- A HELOC is a revolving account. This means you can have variable monthly payments determined by the balance you owe each month. A HELOC also allows you to take some or all of the available credit out as you need it…just like a credit card.

- A HEIL is an installment account (just like a car loan or mortgage). This means you’ll have the same payment every month until it’s paid in full. A HEIL lets you take out only a fixed amount in one lump sum.

- A HELOC could be mistaken as a credit card account by the FICO scoring model because they report as revolving accounts. However, a HEIL cannot be mistaken as a credit card account because a HEIL appears on your credit reports as an installment account.

Because of the effect HELOCs may have on our credit scores, my wife and I are now committed to always using HEILs to tap equity in our properties even though the interest rates are usually higher.

How to protect yourself against holes in the credit system

Here’s a strategy you can use to insure yourself against the flaws we’ve been talking about in the credit system. If you want to tap into your home’s equity, apply for the highest HELOC amount you can qualify for. Just don’t use more than 10% of the limit. The most essential part of this strategy is your discipline after you’re approved. If you can keep yourself from going out and buying things with your new line of credit, you can really protect your credit scores.

This way, even if your HELOC is misinterpreted as a credit card, your credit scores can’t be hurt…in fact, it could even help them. So, a HELOC can be a good thing if your balance is extremely low or nonexistent.

My Wake-up Call

Had I not performed a quick revolving analysis of my credit reports—I never would have known my credit scores were suffering because of a simple credit misinterpretation.

Think about all of the things that can lower your FICO scores…late payments…too much credit card debt…too many inquiries, etc.

These are legitimate and understandable reasons why your scores would go down. But to lose points for a silly loophole in how HELOCs are reported is just…irritating.

It goes to prove what I’ve been teaching for more than 10 years now…having good credit takes more than paying your bills on time. Way more.

Stephen Snyder is the founder of the After Bankruptcy Foundation a non-profit organization that helps people recover after bankruptcy. He has helped thousands of people obtain a credit card after bankruptcy with a fair interest rate.