Credit scores range from a low of 300 up to a perfect score of 850. Obviously most people will end up somewhere in between those numbers. Basic math tells us that the average of 300 and 850 is 575, but actually, the average American credit score is quite a bit higher, hovering right around 690. However, some experts are predicting an overall decline in that average as more and more people are affected by the state of the economy.

While 690 sounds like it’s a fair amount above the expected average, it really isn’t all that great if you’re interested in getting the best deals from the majority of lenders. In fact, most lenders will look at your credit score before deciding whether they lend money to you or not, if collateral will be required from you, how long the term of your loan will be, and the rate of interest they will charge you. It goes without saying that the lower your credit rating, the more it will cost you in the long run.

Because many lenders operate independently, there is no all-encompassing rule as to what number will give you the best deal. However, based on several studies, the magic number, in most cases, is a credit score that’s at 720 or higher. Therefore, having an “average” score of 690 can actually hurt you financially, by preventing you from getting the best possible terms. Again, each lender is different, so it always pays to shop around. On the other hand, if your score is somewhat below normal (usually 620 or lower) you will have to look harder to find anybody that’s willing to give you a loan at all. Though, it is still possible, your rates will be higher when compared to those with a higher score.

There are some experts that predict the lenders will eventually have to give more loans to those with lower credit scores. After all, they only make money when they lend money out, and if too many people have lower scores, they will need to reconsider their policies if they wish to remain profitable.

If you plan on getting a new job, a loan, car or insurance, then you need to do whatever you can to get your score higher. The average American credit score should be thought of as the lowest end of the scale (not 300) if you want to get the best rates.

To be fair, the companies that calculate the scores do not share their exact formulas, but that doesn’t mean it has to remain a mystery. It’s certainly a good idea to have a solid grasp of what goes into calculating your credit score breakdown, as it will help you take the right steps to get and keep your number higher.

Think of it this way: You need to have some idea of how your credit score is derived, otherwise you can’t know for sure how the steps you take will affect it. Just like any subject in school, you can only get good results if you know what subject you’re taking and what will be on the test. Not knowing is a sure ticket to financial ruin.

With that in mind, let’s take a look at some things that go into determining your credit score (all percentages are approximate):

* Credit mix accounts for 10%. This refers to having different types of loans and repaying them as agreed. Having credit cards, a car note and a mortgage indicate that you are able to manage more than one kind of loan at a time.

• New line of credit inquiries account for 10%. When you try to open up several accounts in a short period of time it raises the concern that you are overextending your credit. The more inquiries, the more negative the impact on your score. Note: Any inquiries you make on your own credit reports do not count.
• How long you’ve had a credit history accounts for 15%. Those who have only recently received credit for the first time will have a lower score. However, don’t think that having credit for twenty years will make up for missing payments, as this is only a portion of how the credit score breakdown.
• The total amount you owe accounts for 30%. This is usually calculated by comparing your debt to your income. The goal is to owe less than 25% of your annual income. The bigger your debt-to-income ratio, the lower your score.
• Payment history accounts for 35% (more than any other category). If you are diligent about paying on time, and have never missed a payment, then the above categories won’t matter as much. But even one missed or late payment can drastically reduce your credit score.

As you can see with this credit score breakdown, it’s really not all that mysterious. It’s really as simple as not borrowing too much, not opening a bunch of new accounts, having a good blend of credit, and paying on time…every time.

While there has been a lot of credit history repair tips focused on finding and correcting any errors on your credit report, it should be noted that a large percentage of people with bad credit don’t have any erroneous listings. If you happen to find an entry on your report that shouldn’t belong to you or has been listed in error, then you may dispute the entry and have it removed.

A more likely cause for a bad credit score is a history of late payments or missed payments on bills and loans. As your conduct with your financial responsibilities accounts for 35% of your total credit score, this is usually the section that can reduce your score most quickly.

The good news is, it’s also the sector of your score that you can use some credit history repair tactics to improve rapidly.

Missed Payments and Late Payments

If you have any delinquent accounts showing more than one missed payment, you should find a way to catch up those payments immediately. Do whatever it takes to catch up those missed payments and you’ll be rewarded with an instant boost to your credit score as each of your creditors reports this positive activity.

You may also find that your repayment amounts will be reduced as your creditors will no longer be able to charge you penalty fees and overdue interest rates. This can help your budget at the same time as offering some credit history repair assistance.

Reduce Outstanding Balances

How many of your existing credit cards are maxxed out with balances at the same level as the available limit? Your balances as they relate to your limits form 30% of your total credit score calculations. Reducing them even a little can give you a quick credit score boost.

Hold a yard sale. Find some unused items in your home to list for sale on eBay. Take on a part time weekend job to raise your income temporarily.

Beating Your Creditor’s Reporting System

Here’s a quick credit history repair tip. Your creditors report your repayment activity once a month. They base their information on whether you made your minimum payment amount by the due date or not.

Based on this monthly reporting system, it’s possible to beat your creditor’s reporting system and force them to report more positive activity than you’ve actually made and it’s easier than you think.

Take your monthly payment amount and divide it by four. Let’s assume you need to pay $190 per month. Divide that figure by four and your new weekly payment will be $47.50. Pay this amount on the same day every week.

By the end of the month, your creditors will be forced to report extra payment activity, which gives you a quick, easy boost to your score. The smaller amounts are easier to budget for each week too.

If you’re serious about working on some quick credit history repair tactics, then work on these simple things you can do yourself for free. You’ll be helping to fix your bad credit and you’ll also be learning some financially responsible behaviors that will help stop you getting into the same situation again in future.

First of all, the highest credit score that exists is 850; conversely, the lowest is 300.  Of course, the majority of people fall between those two extremes, and in fact, the average American credit score is now about 690, but with the downturn in the economy and unemployment on the rise, it is likely that individual credit scores will begin to fall, and that means the average credit score will begin to fall right along with them.

Even though the average American credit score seems pretty high, at 690, that is really not “good enough” to get the best credit terms from most lenders.  Most banks and other lenders use the credit history and credit score to determine whether or not they will lend you money, whether or not they will require collateral from you, how much interest they will charge you, and how long they will give you to pay back your loan.  Obviously, the better your rating, the better deal you will get at the bank.

Although there are no hard and fast rules that are uniform across the banking industry, most lenders reserve the best rates for people with a score of 720 or better.  That means that if you are just average (690, remember?), you are not likely to qualify for the best interest rates and terms.  Of course, the policies of the different institutions vary, and right now, a lot of bankers are turning down requests for loans for anyone who is well below the average American credit score, and traditionally, even in the best economy, a score less than about 620 would get you the absolute worst deal.

Some economists predict that in a few years, however, the lenders will be unable to be as particular about whom they offer loans to and will have to be a bit more flexible about terms; the notion revolves around the fact that banks make money by lending it out.  That is a fact; that is why they do it; they don’t lend you money just to make you happy.  That being the case, they must lend, and if the average American credit score drops significantly, banks will have fewer options.  But that time will not come very soon or in the immediate future; right now, everyone expects banks to err on the side of caution, and that is just what they are doing.

When the economy is tough, the banking industry gets more conservative in its policies; if you are in the market for a big-ticket item such as a house or a car now (or will be soon), you should make every effort to keep your credit history on the up and up so you can stand out as better than average and can get yourself the best deal possible when you need to borrow money.

Second mortgages are secured loans that do not have first claim to the house.  If you go into foreclosure, the primary mortgage will be paid off from the proceeds of the sale before the second mortgage is.  That is why second mortgage interest rates are higher because there is more risk involved.

Because people with bad credit are at higher risk of defaulting on their home payments and going into foreclosure, bad credit second mortgage solutions are harder to find.  Here are some of the things banks look for.

First, is there any equity in the home?  A bad credit second mortgage ca often be secured when the homeowner owes 80 percent or less than the house is currently valued at.

Second, is there a low debt to income ratio?  The more debt you have, the less chance you have of securing a bad credit second mortgage.

Third, do you have a solid employment history?  If you do, you are more likely to secure a bad credit second mortgage.

Second mortgages can be used for a number of things.  If you do not have the traditional 20 percent down payment, the second can secure the difference.  Seconds are also used as home equity lines of credit to allow the homeowner to renovate the home or just spend the money.

It is also possible to secure a second mortgage above and beyond the value of the home.  Though this was more common when the credit markets were flush, sometimes you can get loans totaling 125 percent of the value of the property.  Lenders usually allow these loans when they perceive that the value of the property will rise in coming years.  This could be because the real estate market is on the upswing or it could be because the new owner is investing in improvements.

You should also know that it is possible to take out third and even fourth mortgages on your home, though these are rare.  The interest rate on each successive loan becomes steeper as the order of payment in case of a foreclosure is reversed.

Prior to its going belly up, Countrywide was the largest source of bad credit second mortgages.  Now that they are no longer in business, it is more difficult to find these loans.  If you need a bad credit second mortgage, you may want to simplify the search by turning to online providers.  In this way you can fill out one form and have several lenders make offers for your loan.  You can compare rates in one easy step.

Home ownership is part of the American dream.  But, the average cost of a home is six to ten times an average person’s salary depending on what part of the country you live in.  The only chance of owning a home for an ordinary person is to take out a mortgage.  If you have bad credit, it means going to bad credit mortgage lenders.

Many things can happen in people’s lives to put them in a situation where they have bad credit.  It may be the result of overextending yourself.  It may be that you are bad about paying bills.  You may have also had situations outside of your control like a major medical crisis or unexpected layoff.  In any case, bad credit mortgage lenders give you a chance to achieve the American dream of homeownership.

Unfortunately, it is not as simple to get yourself out of a bad credit situation as it was to get into it.  There are some things you can do immediately to improve your credit score, but other options take years of steady payments to improve the bottom line.

One thing you can do immediately is to obtain a free copy of your credit reports.  Then, go through and see if there are any errors.  If errors exist, report them immediately.  The credit bureau has 30 days to confirm the debt.  If they are unable to, then they must remove it from your records.  This can help your credit score tremendously.

When you are thinking about buying a home, make sure you make all your payments on all of your bills on time for at least a year.  This will improve your chances of getting a good rate on a loan.

But, when it comes to actually buying the home, you may find that you have no choice but to go to bad credit mortgage lenders.  This will mean that you have a higher than average rate on your loan and you may also be required to pay extra points.  The lender may also require that you take out insurance to secure the loan.

If you agree to these terms, you have a good chance of improving your credit over the next couple of years.  That is because when you make payments on a home, it improves your credit score.  After 24 months, consider refinancing the home because you should be able to get better rates after you have had the time to rebuild your credit.

Bad credit mortgage lenders offer subprime loans because the risk they take that you won’t pay them back is outweighed by the higher rates and fees you pay.  That’s how bad credit mortgage lenders make their money.

Subprime loans are generally required by people who have missed more than two payments in the last 12 months; have a judgment, foreclosure, or eviction against them; declared bankruptcy in the last 5 years; or have a generally defined high risk of default.

Back in the 1930s, the 30 year fixed rate mortgage was introduced as a financial instrument.  Since then, the rate of home ownership has doubled and two-thirds of Americans own their own homes today.  To expand the reality of homeownership to as many people as possible, sub prime or bad credit mortgage loans came into being.

When you take out bad credit mortgage loans, be prepared to pay higher interest rates and fees.  You may also have to take out extra insurance to ensure that the bank gets paid back.  Be prepared for bad credit mortgage loans to be more difficult to get in 2009 than they were before the housing bubble burst.  This is because there is less liquidity in the markets and the capital will flow first to those with better credit.

But that does not mean that bad credit mortgage loans do not exist.  You just have to work a little bit harder to find them.

First off, you should clear up your own credit history to the extent possible.  Get a copy of your credit report and dispute any inaccuracies.  Pay off any bad debt and get the creditor to mark the bill satisfied in full on your credit report.

Then, start shopping for lenders.  You are looking for a bad credit mortgage loans lender who will give you the best loan at the best rate with the fewest fees.

Be prepared to get into a loan for the short term as your chances of refinancing after 24 months are good.  There are two reasons for this.  The first reason is that after 24 months of regular payments, your credit will improve making regular loans more accessible.

But, the other reason is that by 2012, the credit markets are bound to have improved.  You will have built equity in your home so the loan will be a secure investment for the bank.  At that point, you can refinance into a more manageable loan.

Bad credit mortgage loans exist to allow people like you the benefits and security of owning your own home.  These subprime loans are lifesavers for people who want to work their way back into normal credit.  Generally within 2 to 3 years, a responsible borrower will get into a regular loan rather than the bad credit mortgage loans they started with.

That doesn’t mean you can’t get bad credit home loan financing.  It just means you’ll have to dig a little deeper to find it.

The first thing you should do is determine whether you really are a subprime borrower.  Many people are pleasantly surprised to find that they have better credit scores than they had thought.  If your credit score is better than 620, you probably don’t need bad credit home loan financing – you can get into a traditional mortgage.

Secondly, if you are on the border – if you have credit between 580 and 620 – try to raise your score.  Get your credit report and challenge any inaccuracies.  If you have any bad debts, make good on them in exchange for the lender marking them “paid in full” on your return.

But, if these tricks don’t get you into normal mortgage territory and you still need bad credit home loan financing, go talk to a lender at your bank to get an idea of what you will pre-qualify for.  If you have credit below the 580 mark, you may be unpleasantly surprised at how much the premium you will pay on the loan is.

If that’s the case, then get on the internet and search for “bad credit home loan financing.”  There are many lenders who specialize in such loans.  There are also services where you enter your basic financial information once and get several loan quotes.  These aren’t firm offers because there are still variables such as your proving your financial information and the property you choose itself, but it should give you a good idea about whether you actually can qualify for a home.

You do have some things going for you right now, even if you have bad credit.  There are millions of homes sitting vacant.  Banks want to get these properties off of their books and are willing to go to extraordinary lengths – including bad credit home loan financing schemes – to sell these homes.  Also, interest rates are currently low.  So, even if you are paying a premium, it may be lower than it was a couple of years ago.

In addition, there is a nine month supply of new homes.  Builders want to get rid of these properties.  They may be able to offer you attractive rates so that entire tracts aren’t sitting empty.

The good news is that if you get into a high interest rate bad credit home loan financing situation, you can get into a lower rate in as little as 24 months providing that you make all of your payments on time.  In fact, one of the best ways to clean up your credit and raise your credit score is to buy a house and keep current on the payments.

If you are looking to buy a home, dig deep to come up with the best bad credit home loan financing.

In essence this credit report rating, also called a FICO score, rates your likely ability to repay a loan. It may range from a bad rating of 300 to a great rating of 900. If your score is below 620, you may have trouble even getting a loan. A score above 700 is considered good.

You need to show a good credit history to improve your score. Pay your bills on time. This is the one area where you have the most control. If you have a problem, TALK with the lender. They may be able to work out a schedule that you both can live with, and it may not even be reported on your history. The worst thing that you can do is to ignore it! It will not go away or get better by itself. Lenders do not want to hurt your credit rating, they just want to know that they are going to get paid. You may actually be surprised at how helpful some of them can be.

Another way to improve your score is to keep your debt ratio low. That would be the percentage of your income owed in debt. Most people get into trouble with credit card debt. If you want to improve your credit rating, you have to have control of your credit cards. If you can’t, you may consider cutting them up.

In another article we showed the way to get a free credit report. Check it out here: Free Credit Report. Use the tips there to keep track of your credit history. You have the right to dispute items that show up on your report.

You would be very wise to keep your score as high as possible. Your credit report rating is used for many other things that we will discuss later.