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About Credit
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Credit Report Information
Credit reports contain all of your personal information.
Your name, maiden name, social security number, date of birth, address, telephone,
spouse, work history, your previous addresses, names and other information are included.
You must keep your personal information accurate on your credit reports as failure
to do so may result in information pertaining to another individual listed on your
reports. Most of the time accounts listed on your credit reports that belong to some
one else will be bad debts. This type of thing happens more than people realize.
Statistics show that two out of three credit reports contain errors ranging from
an incorrect address or employer to incorrect credit accounts and public records.
Your credit is one of your most important assets. Most people only find out they have credit problems when they need their credit and cleaning up credit reports takes time. Therefore, make your payments on time, check your credit reports often and if you find an error, don’t wait. Do something about it.
Credit Scores
Credit Scoring is a difficult thing to determine, but it is basically
calculated by good and bad credit with additional factors considered. There are three
major credit bureaus involved in determining your score. Each of these bureaus utilizes
a different method of computing a credit score and reports different creditors; therefore
the end result is three credit reports that each shows a different credit score.
Most creditors utilize the median credit score, which means they don’t use the highest
or the lowest score but the middle score.
How to Obtain Credit
If you do not have credit, it is absolutely imperative that
you begin to establish a credit history, as it is nearly impossible for an individual
to apply for a loan or even rent an apartment without it. Obtaining credit may be
somewhat difficult to begin with as you usually have to have a good credit standing
in order to obtain credit. Therefore, one has to start on a small scale.
If a person has virtually no credit history whatsoever, the best way to start establishing credit is by applying for a credit card. Usually, introductory cards have low maximum limits ($500 or less) so that the customer’s credit worthiness can be established while minimizing the credit card company’s risk. Once the customer makes purchases on the card and pays in a timely manner, a credit foundation will be put into place.
If you have trouble getting a credit account with a major provider such as Visa, MasterCard or Discover, apply for a department store card from places like Target or Wal-Mart or a card from Exxon Mobil or another oil/gas company that you can use to purchase gasoline. Once your credit foundation is set up, you can apply for more credit cards to help improve your score. Once a consumer’s credit report shows enough significant trade lines and payment history it will be easier to get into a rental property, be approved for insurance or be approved for a loan.
When establishing credit for the first time, it is important to know the difference between an unsecured credit card and a secured credit card. An unsecured credit card is one where a credit card company sets a maximum limit, which the consumer can borrow by purchases and cash advances. As they establish a history of paying bills on time, the credit grantor will usually raise the maximum loan amount and may even lower the interest rate.
A secured credit card operates differently and is a good choice to use in starting a credit history if one cannot obtain an unsecured card. Secured cards are backed by collateral as security against nonpayment. These cards are usually opened through a bank where an individual deposits a sum of money (the collateral), which backs the card in case of non-payment. The card is then used as any normal credit card. If the individual proves to be responsible with the use of the card and the timeliness in repayment of debts, obtaining a future unsecured card will prove to be much easier.
Types of Credit
Credit grantors generally issue the following types of accounts:
Revolving Agreement
With a revolving agreement, you may choose to pay your balance
in full each month or make a partial payment based on the outstanding balance (minimum
payment established by the creditor). If you make a partial payment, you will be
charged interest (a "finance charge") on the portion of the balance you do not pay.
Department stores, gas and oil companies, and banks typically issue credit cards
based on a revolving credit plan. One needs to be careful in making minimum payments
as the interest occurred will be added to the total balance of the account making
it longer to pay the account in full.
Instalment Agreement
The consumer signs a contract to repay a fixed amount of credit
in equal payments (installments) over a specific period of time designated at the
time of the contract (i.e., 36 months, 48 months, etc.) These types of agreements
normally include automobiles, furniture, major appliances and personal loans.
Financial Habits
It is important that one looks closely and honestly at their financial
habits. If you typically carry a balance at the end of each month you should find
a credit card with the lowest annual percentage rate (APR) for interest charges.
The higher the rate the more interest charges will be applied to your balance, so
it is important to choose a lower rate card. This will result in savings each month.
However, be aware that many credit cards offer a low introductory rate for a certain
amount of time, but will then raise the rate after that time has expired.
Another important thing to remember is to stay under your credit limit and allow finance charges and cash advance fees into this figure. Cash advance fees can be steep and will be added to your finance charges. For example, a $5,000 credit card limit in use with additional finance charges and cash advance fees of $200 will put you $200 over your credit limit. Going over the credit limit can result in additional over-limit fees.
Lastly you may wish to consider the different rewards credit card companies offer. For instance, if you travel you may want to look for a card with travel or airline miles. If you have a business, many business credit cards offer office supply rewards.
In any event, it is important to find the features of a credit card that fit your pattern of spending and paying.
Payment History
The payment history shown on your credit report includes account payment
information on specific types of accounts (credit cards, retail accounts, installment
loans, finance company accounts, mortgages, etc.), the dates the accounts were opened,
high credit amounts, balances, number of accounts paid as agreed and number of past-due
accounts, the length of time of delinquencies, frequency of past-due items, past-due
amounts on delinquent and collection accounts and negative public records, such as
bankruptcies, tax liens and judgments.
It is important to note here that you are not responsible for accounts listed on your credit reports as “authorized user accounts”. An authorized user account belongs to the person who opened it and who added your name to the account.
Credit Card Protection
People who use their credit card for almost everything instead
of using cash or checks should look into credit card protection. The more the credit
card is removed from your wallet, the more likely it is to be lost or stolen. By
utilizing this protection, you will not be liable for any purchases made on your
card if it is lost or stolen.