YOUR CREDIT AND YOU
OR CREDIT 101
Your credit is arguably one of the most important but least understood elements of your daily life. Everything you do affects or is affected by your credit score. Your credit score or FICO score, as it is commonly called, is used to answer questions like:
Will you get that apartment, house or car you want?
Will your parents have to be co-signers?
Will you have to put down a deposit on your utilities and phone?
What will be the rate of interest you pay on consumer loans?
Will you be allowed to have a checking account at a particular bank?
It has even been used as a determining factor in the sentencing phase of criminal proceedings and the settlement stage of divorce proceedings.
It can influence almost everything. From that college your children will want to attend, to the rate you pay on insurance.
Where you live and in some cases even where you work can be influenced.
Yet most people don't even know what a FICO score is. Most have no clue how to build, manage or even fix credit. The sad fact is that for most people, it just is!! Or as in many cases, isn't.
A "head in the sand" attitude may have worked years ago but in today's world, your future and what you will do with it is being determined by what you do with your credit today.
That is why we have created "Credit Strategies". To help people understand and take control of their personal credit and use it to achieve their goals in life both financial and personal.
But before you can build that future you must first have a strong foundation. No matter what your age, you can start to build a new foundation today.
Just what is a FICO score?
A FICO score is a method of determining the likelihood that credit users will pay their bills that was originally developed by Fair Isaac & Co. It ranges from N/A to 850. While its original intent is simple, today, your FICO score is a very intricate, constantly changing, almost living creature.
How does it work?
Data is collected from all over the world, 24/7. It can come from almost anyplace. Banks, stores, utility companies, police, courts, schools, churches, even the pizzeria up the street. Anyplace that might have recorded your name, address, phone, drivers' license, social security number, checking account number or other identifying information, any information deemed usable by law is then recorded and, following the methods set down by "FICO" is used to "update" your score.
There are three major centers for collecting and disseminating this data. They are Equifax, Trans-union and Experian. The same banks, stores utility companies etc. that reported to these agencies, in turn are provided your score when asked.
How do I get started?
In order to have a positive FICO score, there are some basic things that your report must show.
Employment- Maintaining full time employment is needed to maintain a positive score. However it must be in the same field or industry for 6 months or more. A year or more is even better. Changing jobs, even a few times, in the same industry is ok. Example: I am a waiter at Joe's Restaurant. I decide to go to work at Ruby's Restaurant. That is ok. Changing from one industry to another can be more problematic. Example: I work at Joe's and I decide to go to work for Ray's computers. This impact's negatively on your score and can drive your score down. A limited exception to this is being a full time student with a part-time job.
Banking-Having a bank account with a positive balance and no overdrafts for a period of 6 months is essential. A small savings, attached to the checking to avoid any unintended overdrafts is always a good thing but not necessary.
Paying bills-A utility bill, car payment or other debt that would be considered a re-occurring debt is also helpful. Payments made on time every month for six months or more is needed.
Credit Cards-Acquiring a credit card is a significant part of establishing good credit. I recommend going to www.iwantacreditcardnow.com there you will find a complete line of consumer credit cards with excellent terms. One active credit card is a strong signal of your credit worthiness. Two is even better.
Please understand that your payment history accounts for 35% of your score. The amount that you owe accounts for 30%. Next in line is credit history, which makes up 15% of your final score. Applications for new credit and types of credit in your record each account for about 10% of your score.
Why is my interest rate so high? Why do I have an annual fee? Why do I need a secured card?
Generally the best interest rates go to people with a score of 750 or better. You should still be able to get a good card down to about a 650 score. Once you go below that, It becomes more difficult. You will likely have to pay a much higher interest rate and in some cases, annual fees. If your score is below 600, you may have to start with a secured card until your score has reached the 650 range.
Once you have established these basic credit elements, the respective parties will begin to report your information to one or more of the agencies, your activities, good or bad on a monthly or quarterly or in some cases a semi-annualy basis.
What if the information is wrong?
Everyone has the right to get a copy of their credit score from each of the three agencies once a year at no charge. In addition, whenever a major event occurs such as a new loan, you can also get a report from which ever institutions were used. Never assume anything and check the entire report for any mistakes or discrepancies. Dates, amounts any inaccurate information should be reported. If any are found, contact the agency using the information they provide and file a dispute. In most cases you can get the corrections done yourself simply by corresponding with them and taking the recommended action.
Why do I even need a credit card? I've got money.
If you don't buy on credit and pay everything with cash, you will have a low or even no credit score. With no credit history for the credit scoring agencies to use, they cannot give you a complete score. This does more than just hurt your credit score, it can also impact insurance costs. Insurance companies do use your credit score when determining rates. The belief is that people with a higher credit score file less claims and therefore are lower risk, so they get the best insurance rates.
My credit is already bad. What can I do?
If you have already been given credit and did not handle it well, or have shown a history of not paying your bills on time then you might need to retain the services of a credit restoration service. Be careful. Always check the background of any company you want to do business with. Call the BBB. Ask for references that you can talk to. We work with a company called "Cornerstone Restoration Group. They can be found at www.reversemycredit.com
A good repair company will look at your report and give you a clear path to get all the old issues resolved and back to square one. Once you have done that, you can pick up here and start over. Yes it is going to cost you both time and money but if you do as is suggested, you can start over.
Ok, I've established my credit. Now what?
Once you have completed all the tasks listed above and have had good credit reports for 6 consecutive months are more, you can start taking advantage of some of the advantages that good credit can provide.
Building good credit is essential to getting a good home loan at a good rate. it takes time and dicipline. it also takes knowledge. learn how to take charge of your credit and you will be amazed at what it can do for you.
Look for future articles on things like:
How to get your credit rating to 800 or better.
How to cut your daily living expenses (gas, food, entertainment, travel) by 5%or more.
How to buy the home you want for less than you are paying in rent with little or no money down.
These strategies and many more await you.
Look at these great web sites for more information:
Comments(0)