When it comes to credit so many people are not aware of how to establish or build credit because this is a subject that was NEVER taught in our schools, and most people don't worry about their credit until they really need it.
We not only help you restore your credit but we help you build and maintain your credit file.
Credit is the ability to borrow money or access goods or services with the understanding that you’ll pay later.
Lenders, merchants and service providers (known collectively as creditors) grant credit based on their confidence you can be trusted to pay back what you borrowed, along with any finance charges that may apply.
To the extent that creditors consider you worthy of their trust, you are said to be creditworthy, or to have “good credit.”
Your credit score reflects the information found in your credit report and is used to determine your creditworthiness. Basically, it tells lenders how likely you are to default on an obligation.
Credit scores range from 300 to 850, and the higher the score, the better. While no formal definition of a “good” credit score exists, generally, a minimum credit score of 680 is considered good. Your credit score is based on payment history, how much you owe on your accounts, credit history length, types of credit you have, and any new credit such as recently opened accounts and credit inquiries.
Credit scores are important, as everyday life can be negatively or positively impacted. Your credit score determines if you are approved for credit cards and loans and can even determine if you are billed or have to prepay your monthly utilities. They are used in almost every part of our lives, from credit cards and loan applications to employment opportunities. And those with good credit scores have access to more financial products, lower interest rates, and better terms.
The two main scoring models to calculate your credit score are FICO and Vantage Score and lenders may look at one, or both of them when making decisions to issue credit or approve you for loans. They gather these reports from the three major credit bureaus known as the National Credit Reporting Agencies (NRCA) and analyze the reports’ anonymous consumer data to generate an accurate scoring model.
TransUnion, Experian, and Equifax are the three major credit reporting agencies. They collect and maintain the information that makes up your credit history and your credit report. NCRAs are for-profit companies that sell this information to other companies, like lenders, insurance companies, potential employers, utility companies, and landlords. They do not share information with each other, so information that is found in one credit report may not be in another.
They collect information from your creditors, like a bank or credit card company, and public records, such as property and court records. Each NCRA gets its information from different sources. The information collected is used in your credit report. Organizations that may request your credit report include lenders from whom you are seeking credit and those who gave you credit; utility companies from whom you are requesting service; your employer or prospective employer; and banks where you want to set up an account. What is in your credit report can negatively or positively impact your credit score, which is a number that is used to determine your creditworthiness. The higher the score, the better, as you will have more access to financial products and better terms.
There are four types of credit, revolving credit, charge cards, service credit, and installment credit.
There are a few laws that guide your rights in the credit world. It’s vital to be aware of your rights and the responsibilities of creditors, lenders, and other businesses in the credit industry. Knowing these laws will help you know how to properly respond to issues that arise.
The FCRA protects your rights when it comes to credit reports and credit bureaus. Basically, the information in your credit report must be accurate, fair, and private. So, it’s important that you know what’s in your credit report to make sure there are no errors that could prevent you from getting what you need, like renting that better apartment, and even more – like the best terms on a car loan or mortgage.
What you need to know about your rights under FCRA:
Credit follows you for your whole life. It will determine the financial opportunities you will be given. So, take steps to maintain a healthy credit score, avoid actions that will negatively impact your score, check your credit reports regularly and know your consumer rights.
This is the classic credit score catch 22 – you build credit with credit cards and loans, but you need to have a credit score to get approved for a credit card or loan. No or low credit history means a low credit score.
But did you know that lenders don't look at just your credit score? They’ll also look at your entire credit report which is far more detailed than just your score.
An FTC study found that 25% of consumers had an error in their credit report from one or multiple credit reporting agencies.
Errors are sometimes caused by simple human mistakes, but unfortunately, they can also be from fraud. When a fraudster gets a hold of your information, opens up a credit card or loan in your name, spends the money and does not repay the debt, this shows up on your credit report as a delinquent account and really hurts your credit score.
It’s a good idea to keep a close eye on your credit report and look out for anything you don’t recognize like unexpected charges on your cards or new accounts you did not open.
If you find something, be sure to contact the company on your credit report to let them know. Then contact the credit bureaus to let them know there is a mistake and potential fraud on your account.
On time payments are the most important factor in your credit score. A single late payment can significantly ding your credit score.
Be sure to make payments on time. Try setting up automatic payments on your bills and credit cards and always pay at least the minimum payment on your credit card by the due date. If you can, pay off the statement balance in full by the due date so you don’t get charged interest.
Every time you apply for credit, a hard inquiry appears on your report. These typically only affect your credit score by a few points and after a couple of months your score should go back up.
While the impact on your score may only last for a couple months, the inquiry itself remains on your report for up to two years.
Having too many hard inquiries on your credit report in a short period of time makes the credit agencies question why you need to open so many new accounts. This means you can be viewed as a credit risk and can potentially hurt your score.
Be sure to apply for credit when you really need it.
If you pay off a card and close it, you could significantly hurt your score in a few ways.
First, that account no longer counts towards your average credit age. For example, if you have two cards with one being ten years old and the other brand new, then your average credit age is five years. To calculate this, you take the total credit age of all of your accounts and divide by the number of accounts.
Wait a minute, your score goes down when you close an account and open a new one?
Yes but opening an account is usually a smaller dip that recovers quickly.
When you open the account your score drops because of the hard inquiry we talked about earlier and also because it’s brand new, it lowers your average credit age.
On the other hand, your total credit goes up which positively affects your debt to credit ratio, which is why the dip in your score is typically smaller.
With time the account becomes more mature and as you continue to make on time payments, your credit score will go up.
Once you’ve mastered how to manage your credit score, you can take advantage of rewards cards that offer valuable cash back and perks. A higher credit score will allow you to save hundreds, even thousands of dollars on a car, a home, personal loans, insurance products, and can even boost your chances of getting hired.
Your credit score matters so make sure you take care of it!