Good credit has an important role to play in your financial life. Not only is it necessary for things that are so obvious such as qualifying for a loan or getting a credit card, but it’s necessary for things that are less obvious such as getting cellular telephone service, renting a car, and maybe even getting a job.
Amazing Facts: What Is a Credit Report and Score?
What is a Credit Score?
A credit score is a three-digit number used to determine how likely you are to repay a loan on time. It uses information from your credit report to predetermine your credit risk of not paying that loan back 24 months after scoring.
What is a Credit Report?
A credit report can be defined as an explanation of your credit history. This states the when and where you applied for credit, who did you borrow money from and whom do you still owe. Your credit report also provides information about whether you have paid your bill a certain amount of money or whether you pay your bills every month on time.
How to Obtain a Copy of My Credit Report and Score
The three nationwide consumer reporting companies – Equifax, Experian and TransUnion – are required by The Fair Credit Reporting Act (FCRA) to provide you, at your request, a free copy of your credit report once every 12 months.
How much does it cost?
- You will have to pay around $14 in order to receive another credit report within 12 months of the time you received your free report.
- To get a copy of your credit score, you will have to pay one of the three nationwide consumer reporting companies around $14.
Correcting Errors in Your Credit Report
To whom am I getting help from, if I find something wrong?
It falls on you to correct erroneous or incomplete information in your report. There are two things that you should do if you find an inaccuracy:
- First, tell the consumer reporting company (where you got the report from), in writing, what information that you think is inaccurate. Consumer reporting companies are supposed to be required to investigate anything in question, and should forward any and all pertinent data to the organization that provided the information in question.
- Second, send the disputation in writing to the creditor or other information provider who sent you the information.
Who Has Access to My Credit Report?
The FCRA includes provisions as to who is able to obtain access to your credit report. Those who have access to your credit report include:
- Creditors
- Insurers
- Employers
- Other businesses that use information in your report in evaluating your applications for credit, insurance, employment, or the renting of a home.
Why is Saving So Important to Credit?
It is significant for all Americans to have savings. Having a savings account gives people the ability to be able to pay for emergencies, because it gives people financial freedom, and it can lead to an increased credit score. A high credit score may make it easier to rent an apartment, get utility services and even get a job.
Paying for Emergencies
Having a savings account will enable people to be able to pay for emergencies independently, without turning to high-interest credit cards and payday loans. Not being able to pay off these sorts of loans can have a very serious effect on your credit score.
Higher Credit Score
Having savings helps you to pay your bills on time. Paying your bills on time may result in a higher credit score.
How Do I Start Saving?
When it comes to saving money, the sooner the better. It’s not any act that’s accomplished overnight, but a process that occurs over time and grows over time. Just remember, slow and steady wins the race though.
Making ends meet can be an obstacle. And you might ask how is it possible to spare anything. But whatever we save – a quarter, a dollar – is progress. These quarters and dollars do add up. As you get into the habit of “paying into your savings” on a regular basis you’ll watch the money you’re putting out grow.
The first thing you have to do to start saving is taking a look at your finances and make sure that you are spending less than you earn.
- Make a budget
- Information on ways to limit spending
- Set up automatic savings
Why is Good Credit Management So Important?
Good credit has an important role to play in your financial life. Not only is it essential to obvious things like qualifying for a loan or getting a credit card, but to less obvious things like getting cellular telephone service, renting a car and perhaps even to getting a job.
If you can manage your credit, this will also ensure that you can save for a rainy day. A good credit history, as evidenced by good credit scores, will allow you to qualify for lower interest rates and fees which would free up additional money which you then set aside for emergencies, retirement, and other smaller unexpected expenses. Decreasing debt and increasing savings helps to decrease stress and be much more financially free.
The good news is that it is not difficult to have good credit. Simply follow these five fundamentals of good credit management and you will build and maintain a credit history that will enable you to get the credit you need, when you need it.
Few people know how to establish good credit. Few people understand how to build good credit.
1. Establish a Credit Report
To have an established credit report you must have an open, active credit account. To get your first Credit Account Talk to your Bank or Credit Union.
2. Always Pay as Agreed
Make the minimum payment required every month and never be late. Delinquent payments and payments not delivered in line with at least the minimum amount of the contract will have the most immediate, negative effect on your credit report and credit scores.
3. Keep Your Balances Low
Consisting low balances in comparison to your available credit limits is a sign of good credit management and shows lenders you are a good credit risk. Your utilization rate, also called your balance to limit ratio is a key component to credit scores.
4. Apply for Credit Wisely
Do not apply for multiple accounts within a short period of time. Taking on large amounts of debt in a short time is an indication of high risk to your credit score. Apply for credit when you need it and only in the amount that you need. Just because an offer for credit is made, is available, it doesn’t mean you must accept that.
5. Demonstrate Good Credit Habits Over Time
In order to have good credit scores you have to show a history of good credit management over a long time.
Is Credit Repair a Good Idea?
Every day, firms try to contact people with poor credit histories and promise to have their credit report fixed in return for paying them a fee for their service in order to get a car loan, a home mortgage, insurance or even a job when they get their credit report cleaned up. The truth is, these companies are incapable of providing an improved credit report for you by the tactics that they promote. It’s against the law: No one can remove correct negative information from your credit report.
What is Loan Consolidation?
A Direct Consolidation Loan is an extension in which a borrower can consolidate (combine) several federal student loans into one loan. The result is one monthly payment in lieu of multiple payments. Use a loan consolidation calculator to determine whether this would be a good option for you.
What is a Debt Management Plan (DMP)?
Organizations offering to provide credit counseling usually organize for consumers to pay debts with a Debt Management Plan (DMP). In a DMP, you make monthly deposits into an organization trained in credit counseling. The organization uses these deposits to pay your credit card bills, student loans, medical bills or other unsecured debts on a payment schedule that they’ve worked out with you and your creditors.
Note: Creditors will agree to reductions in interest rate or waiving certain fees depending upon you are repaying through DMP. Some organizations that provide DMPs have deceived and defrauded consumers. If you are paying through a DMP, call your creditors and make sure they have agreed to the proposed plan before you send any payments to the organization that is dealing with your DMP.
Getting Help with Debt
In most communities there are agencies which can help you cope with your debts. The most helpful and most widely available are the non-profit Consumer Credit Counseling Services (CCCS). CCS counselors can work with you personally to help you create a budget, work out your options and negotiate with your creditors to pay your debts. Call 1-800-388-2227 to find the office nearest you.
If your debts are too much, you may want to consider bankruptcy. Bankruptcy can provide you with a fresh start, but this is a serious step that makes it difficult for years after your bankruptcy to get credit. Call your local Legal Aid/Legal Services office for advice. If you do not qualify for their services, ask them for a referral to a bankruptcy attorney.
FDIC Model Safe Accounts Template
The FDIC Model Safe Accounts Template offers the guidelines recommended to insured institutions for offering safe, cost-effective accounts for consumers. The accounts reflect the following guiding principles: transparent and reasonable rates and fees and access to banking services that are FDIC insured.
Frequently Asked Credit Questions
Do Late Payments Affect My Score?
How many you miss, and if you don’t pay the debt at all, and how long the late payments were from is all important. The further in the past a late payment took place, the less impact the late payment will have on credit scores and risk of lending. That is why catching up on your payments is critical if you have fallen behind.
How Can I Obtain Credit If I Am Unable To Get a Credit Account?
If you cannot obtain a credit account from a bank or credit union, you may need to get a friend or family member to cosign with you or add you as an authorized user to an existing account.
Will Closing Accounts Give Me a Better Credit Score?
Watch out about closing accounts. Doing so will lower your available credit limits, as well as raise your overall utilization rate so that it might seem like you’ve suddenly taken on more debt too. The result is for your credit scores to be temporarily negative.
Won’t Applying For New Accounts Lower My Credit Score?
Each time you apply for credit, an Inquiry is added to your credit report. Inquiries are a record that a lender has reviewed your credit record as a result of your application for credit. They tell them that you may have new debt that is not yet represented as an account within your credit report, and are thus an unknown risk to lenders. For that reason, recent inquiries can have a small but meaningful impact upon credit scores. However, that impact is only temporary.
How is My Score Affected by Shopping for a Car or Home?
Inquiries for auto purchases and mortgage loans are one-of-a-kind. Because lenders know that you will be shopping for the best auto and mortgage loan rates, inquiries for those types of loans in a short period of time will be considered a single inquiry in the credit scoring systems. Doing this way you can locate the best rates with little to no repercussions in your credit scores.
What is the First Step to Rebuild My Credit Score?
The first step in rebuilding strong credit scores following issues with credit is becoming current on any accounts by paying any past due payments. Before your credit scores will improve significantly, however, you must show that you have gotten your credit under control by making on-time payments over time. The more severe your credit problems are in your past, the longer it will take to develop a positive credit history and good credit scores.