Hello folks please read the newsletter below and if you have any clients that need a helping hand please refer them and I will send them back to you when they are ready to purchase.
CREDIT TALK 101, LLC VOLUME I CHAPTER 1 JANUARY 2008
What is Credit? Why do we need it?
Happy New Year to all and welcome to the first edition of Credit Talk 101's newsletter. The intent of this newsletter is to educate the general public on the issues that are going on today in the credit industry.
We will be speaking today on credit and the need for it.
According to Wiki Encyclopedia: Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not immediately pay the first party for the resources in full, thereby generating a debt, and instead arranges either to pay for or to return those resources (or equivalent value) at a later date. The first party is called a creditor (lender) and the second party is called a debtor (borrower). This practice has been going on for thousands of years.
What is a credit profile? A credit profile is created when you are born and given a name and social security number. The Federal Government uses this number to track every move that you make from schooling to employment to medical. At the age of 18 years old you are able to apply for credit in your own name and may obtain your first credit card or installment loan (usually a school loan).
Years ago we were a cash society and as more and more offers were given to people to have the product now and pay for it later we now have converted into a plastic society.
Why do we need credit? The reason we need credit is because it looks at how you pay for items. If you pay for items on time you will have a better credit profile and will be able to purchase more items or loans without a deposit or a high interest rate. If you do not pay your bills on time you will be considered a poor risk and have to pay deposits or higher interest rates. You may even be limited to where you live, how you live and what you can have.
Previously, credit was very personal and based upon ‘a handshake' and who you knew. However, The Fair Isaac Corporation (FICO) modeling system was created in 1956 to assess the risk factors of individuals for the banks and lending institutions. FICO rated individuals based on 35% payment history, 30% amount owed, 10% types of credit in use, 15% length of credit history and finally 10% of new credit. These ratings were reported to the three major credit bureaus (TransUnion, Equifax and Experian) that adopted FICO.
But these businesses are not run by the Federal Government and if there were errors, most consumers did not know how to fight the companies.
In 1970 Congress got together and created the Fair Credit Reporting Act (FCRA). In this act it stated that individuals were entitled to one free credit report a year and were able to dispute items they felt were inaccurate. The FCRA has 29 laws and 524 regulatory subsections that constitute the law to correctly dispute items on the credit reports. If an ‘error' on a report was not obvious, most people would not be able to follow the FCRA.
Cash has been king for decades and credit only used for extreme emergencies or large purchases. Well, the lending institutions wanted to get a larger share of this market, so they started to offer credit cards with low introductory rates and/or no annual fees, free credit miles, or rewards if you use the card more. People started to use the plastic more and created a whole lot of debt. Statistics show that items paid by credit cost 2 times more than if purchased with cash. Credit is easy and painless...at first.
In January 2007 things began to change. The banks got together and approached Congress and stated that too many people were just paying the minimum on their credit cards and we would never be able to pay them off. In response, minimum payments were doubled and available credit lines decreased if your credit rating dropped for any reason.
With these changes, credit ratings plunged for many because of late payments. And costs for everything such as insurance, mortgages or other credit were at risk of increased rates.
In the next issue find out how to get your credit reports.
About the Authors:
Credit Talk 101, LLC are Independent Associates of Credit USA, Inc and its Subsidiaries that assist individuals in the removal of outdated, inaccurate and unverifiable information reported on credit profiles.
For more information:
Go to www.credittalk101.com or contact us at 1-877-572-0902 on how we can help you.
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