Thursday, April 5, 2012

Knowing your credit

Credit, what is this and how does it effect you? 

Credit is:
The ability to obtain goods or services before payment, based on the trust that payment will be made in the future.

  • Credit Score is:          Is a number calculated based on the information within your credit  report.   Lenders use this number to assess the credit risk you pose and the interest rate they will offer you if they agree to lend you money.

Knowing your score is very important. I have learned over the years that if you are not aware of what is within your credit report that it can potentially hurt you down the road.  Like so many Americans turning 18, going off to college, wanting to build credit for the things we want such as a house and car and wanting it now has effected so many.  I can attest to this because when I went to college I was getting pre approvals left and right from credit card companies wanting my business, so me being young, not knowing, and not educating myself I applied.  I actually received about 12 credit cards from a Kaufman's Card, to a Walmart Card, to American Express over a period of time.  I was in the high 700's on my score.  I had just got a new job making good money, in college,  so I decided I wanted to get a new car.   Was making payments on time, but then my hours got reduced.  I didn't have a balance on all my cards so I decided since I'm not using them I would close those ones and send the minimal payment to the ones I did use and keep up on payments on my car.  Long story short I wasn't able to keep up on the payments and eventually stopped paying on credit cards and payed on car which eventually began taking a toll on my score.  It has been years since, I have graduated, been keeping up on my credit report and have one card that I use and pay off the next month.  But here are a few ideas that I learned over the years that I hope will help you:

  1. Know what's in your credit report.  There are several sites that allow you to check your credit for free once a year and if you want to check it monthly there is a small fee to do so.  One of the most popular ones that I like to use is you pay $9.98/mo and every month you can view your updated credit score, if any discrepancies you can dispute them right away, and it breaks down the reasons your score maybe at a certain number.
  2. Secured Credit VS Unsecured Credit:  Secured cards are those with a set interest rate, it is almost like a debit card where you can't spend whats not available. So basically you are ultimately depositing money on the card and paying a small annual fee.  An Unsecured card is like the Sears or Walmart or Visa and Master Cards where you apply for credit and they set the limit on the card and you can have a variable interest rate and higher membership fees.  If you are looking to rebuild or maintain your good credit I would suggest a Secured credit card. "Given all that, it's probably no surprise that an industry expert like Odysseas Papadimitriou, CEO of credit-card comparison website, recommends secured cards for those trying to rebuild. If you have bad credit, Papadimitriou says, opening up an unsecured card amounts to tying a hand behind your back. (Papadimitriou also dispels a widespread myth: that to improve your credit score, you need to use the card, charging and paying it off every month. Wrong, he says: you could lock a secured card in a drawer, and as long as you keep up with the annual fee, your reports will reflect an account in good standing.)"
  3. Pay off your past due balances because your past due balances cover about 35% of your credit score. The further behind you are on it the more it will hurt your score.
  4. Avoid applying for too many new credit accounts. The more inquiries that occur on your report can also affect your report.  to many new accounts with little older accounts has a negative outlook on your score.
  5. Avoid closing accounts or at least to soon I can not stress this one enough because this is where I got into trouble at.  I thought closing my cards that I wasn't using would have no affect on my score but I was wrong.  If you have say 3 cards one you opened Oct.2009 one Oct2010 and one Nov2010 and you only have a balance on the second one and third and you try closing them your score will drop tremendously.  How ever if there wasn't a balance it may drop less but still will drop because its new accounts.  Never close your only card and never close your oldest card.
  6. Make payment arrangements with your creditors Like most, I have cringed at the fact of calling to set an arrangement with creditors because they usually say no or we need X amount now and X amount by this date.  Don't late that  discourage you, sometimes you may call a few times and speak with someone else and they will allow you to make a lower payment as long as you give them a post dated check.  But make sure to call them as soon as you know you will not be able to pay, do not wait till your past your grace period because sometimes they can not extend it.
  7. Set a budget and if you can't afford to pay for an item in cash then do not charge it because 9 out of 10 times you may not have the money later to pay your bill because like always something else may come up more important to be paid like your electric bill.
  8. Counseling If need be speak with a financial advisor or credit counselor who can assist you with making a plan of action to build or repair your credit
These are just a few ideas that I have used in order to help repair my credit and what I have learned over the years of what not to do.  I hope this is helpful!!!


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