Credit & Credit Report. What is Credit and why do you need credit?

Credit & Credit Report. What is Credit and why do you need credit?
Summary: Webster dictionary defines credit as: "Reputation of trustworthiness; Influence derived from the good opinion or confidence of others..." In other words, credit is the amount of financialinfluence a person possess.
Article: Wherever you live in this crazy world of genocide, suicide, murder, rape, or other crimes of human against human, or adults against children,... when every religion claims and repeats to enforce the same ideology that "we are all brothers and sister", credit is the "ideology"/concept of living a better life. It does not mean that credit or money will bring happiness but it provides us a better lifestyle. With credit, you can buy a better car than an embarrassing clunker we may drive. It allows us to have roof over family's heads, gives us opportunity to own better furnishings, and so much more. The concept of credit is practically saturated in our lifestyles to the extent that we cannot draw a distinguishing line.

Have you ever heard your parents or grandparents tell you, "we used to go to the grocery store down that street, picked up whatever we needed and if we didn't have money to pay right then, we would ask the store owner or manager to add the items to our bill and next time we come in, we'll pay the bill..." It was a trustworthy relationship (as described in the credit definition-above) people had a few decades ago. However, that type of trust seems to be a thing of the past. Now, we live in a bigger, more crowded, and distrusting world. Most to all of those mom and pop stores have been closed, become major corporations or that the employees' and managements' "ideologies" have changed. It is also because some of us have abused the "Trustworthiness afforded to us by others." Although some utility companies may still apply some concept of the old school credit and trust us; however, they still request a cash deposit or ask to see our credit report in advance of connecting our services, which takes us to the next paragraph.

What is a Credit Report? As a result of the changes in our lifestyles, distrust and other issues discussed in the paragraph above, for profit companies (Equifax, Experian, and TransUnion) have been established to obtain, process and hold our history of trustworthiness ("credit history"). These companies, which are called credit reporting agencies or "credit bureaus", have been receiving our credit history, accumulating, holding and processing them into an organized, readable format (called credit report) for others who are willing to lend us money (Creditor). Therefore a credit report is a collection of your payment history for loans and credit cards of over the past several years. As a result, whenever you want to purchase something using Other People's Money (OPM), the one who wants to lend you money or extend credit in some fashion, would want to pull-obtain/retrieve your credit report.

Note: Since we mentioned "several years", lets make this phrase clear. a. If you opened an account and the account is still open, then it will be reported on your credit report (also called "credit file") from the date the account was opened... now read b. b. When an account closes, it still remains and reported on your credit report for yet another seven years. c. Now if the account was in good standing and closed that way, there will be a note/comment on your credit report (on the last line of the history for this account) that will say, "account closed at consumer's request." However, if the account was in default (you missed payments and the creditor was forced to close the account) then, it will state, "account closed by credit grantor." d. If the account has a balance and was not paid at the time it was closed, then depending on the type of account, it will report serious negative on your credit report such as "Collection," "Charge-off," "Repossession," "Foreclosures," or some other adverse wordings (depending on the type of account you were holding. (For more in depth information, please read the book called, "Your Credit = Your Life, Fix It Now!" e. Whichever type of accounts you may have (whether good or bad), it will NOT be reported for more than sever years on your credit report, UNLESS, you file bankruptcy and include some accounts in your bankruptcy petition; therefore those accounts will be reported longer (based upon the type of bankruptcy filed).

Why credit repair is important? First let's make something clear. Although a lot of credit repair companies want to mislead you by making you to believe creditors and credit bureaus are horrible devils from "hell", the truth is that mistakes can be made by all parties. The same way that we may make a mistake and forget to pay a bill on-time (once or twice), the creditors may report inaccurate information by mistake. There is no law broken. However, the law is breached when a creditor or a credit bureau does NOT want to fix the mistake, argue with you or abuse their discretion. As stated in the last paragraph of "What are Credit Bureau's Responsibilities?", a bureau is responsible to report accurate information and any evidence of inaccuracy must be resolved in favor of consumers. This includes when a creditor or a collection agency does not reply to the bureau's request for correct information. See the book mentioned above.

The way the credit system works is similar to the court system. You are presumed innocent until proven guilty. However, in the court system a person that is charged with a crime, is arrested, taken to jail, finger printed, booked, a bond is set (in most cases), then released on bond until a later date when through a series of court hearing the person is proven innocent or guilty. Although most credit repair companies want to make you believe that the credit system works in the reverse order, this is not true and do NOT be deceived. As I stated above, mistakes can take place by both (your creditor and or the credit bureaus). It is your job to look at your reports, find the inconsistencies and contact the bureaus or the creditors to resolve the issues. Discussed in the resource mentioned.

Sine the inconsistencies can take place accidentally or inadvertently, no one can be blamed UNLESS you notify the party who made the mistake and no corrections are made. Some credit repair companies use scare tactics concerning credit bureaus to get your business.

Good Credit - Bad Credit

Good credit is a precious commodity. It takes us years of purchasing, borrowing, and paying timely to perfect the art of good credit. And once you have it, you should not want to do anything to cast a negative light on it.
Good credit could be characterized by a person having opened revolving twelve month credit to pay for their first mattress, and later financing their first washer and dryer through a store credit card, and a few years later having dealer-financed their first new vehicle on a five year note. Let's not forget the ten year repayment student loan that helped jumpstart this individual's career.

Throughout the years, this individual made periodic credit card charges for incidental items and for longer term payment items using more than one credit card. This individual, M. Goody, has paid all of his past and present credit responsibilities on time. Over the years, his credit limits have progressively increased. Also, he has retained a respectable number of credit cards and dollar amounts of outstanding credit and loan balances.

As time grows on, M. Goody is ready to purchase a home. His credit history now becomes an indicator of his likeness to repay the home loan and even calculates into his home affordability. The chosen loan company looks at M. Goody's credit report as well as his credit score. Having a score of 730 out of 850 is not bad. It is well within the very good range. Therefore, M. Goody can expect to receive the best interest rates available for his home loan. The exact amount he can afford to borrow for a home include additional criteria and is yet another story.

While M. Goody now has an opportunity to weigh the terms and cost of a loan with this home loan creditor, he should be aware not to solicit more than a couple of home loan creditors to inquire on his credit report. For every such inquiry reduces your overall credit score. And you want to retain the highest score possible.

What did we learn about M. Goody? Over the years, he built up the number of creditors, paid on time, and increased his credit limits. Having a respectable number of creditors shows he can properly manage the credit entrusted to him. Also, retaining older credit lengthens his credit history. Paying his credit on time shows he is trust worthy to lend money to. It also shows that he is actively managing his monthly bills. Increasing his credit over time allows M. Goody to show responsible use of higher dollar limits. It also shows a lender he is worthy for larger loans, specifically that he may be worthy of their financing his very first home.

Bad credit is easy to come by. All you have to do is get access to one or more credit cards, not pay on time, spend more than the minimum payments you can afford on a monthly basis, purchase a car you can't afford, and/or file bankruptcy.

There are millions of people in the U.S. who have done just what has been described above. Unfortunately, they have either not taken their credit seriously or have succumb to an unfortunate monetary event. In any event, credit is the basis of many criteria which dictates your borrowing power and certain coverage: from car loans, to home loans, to revolving credit, to car insurance rates. If you are one of the unfortunate, it is time to do sometime about it. There are ways to build and improve your credit.

Item 1. Start by organizing your bills. List your expenses. Remember you have household expenses such as food, toiletries, gas, etc. These need to be included along with your credit obligations. Set a budget amount to pay each expense. You'll want to pay off your outstanding credit balances as quickly as possible. This may take years but there's no time like the present to start. Pay at least some amount on all outstanding credit (if you can't pay at least the minimum, the creditor would rather have some amount than zero. See item 3 for more details). Focus higher amounts on credit cards with the highest interest rates first. Getting higher interest cards paid off first will free up more money to pay off other debts much faster.

Item 2. Do not attempt to get new credit, close any accounts that have a zero balance, and have your creditor reduce your credit limit where not needed. Attempts at new credit may inadvertently appear that you plan to continue bad spending habits. This will not help with credit negotiations. Closing any zero balances and reducing credit limits shows you will not attempt to unwisely use your available credit. It is wise, though, to keep at least one favorable (in good standing) credit card in case the creditors in negative standing decide to close your accounts at some point.

Item 3. Contact your creditors and negotiate a payment plan that is fair to you and equable to them. In every case it would be preferable to pay the minimums on all credit obligations. If you find this is not possible, do not hesitate to ask your creditor to reduce your interest rate and your minimum payment to improve your ability to repay the loan timely.

Item 4. If possible set up automatic bill payment from your checking account to pay some of your credit cards. This will improve your ability to pay your bills timely and should help establish a better standing with your creditor.

Item 5. Any extra cash that befall you, bonuses and cash gifts, use it to pay down on the higher interest rate credit cards. It is good practice to pay off as much as you can as soon as you can.

Item 6. Work diligently to clean up your credit report. You should start this effort as early as possible. It can take lots of work to clean up this act. Your credit report may contain erroneous and misleading information. Identify accounts that should be closed and ones that contain incorrectly recorded information.

Contact the three credit bureaus to get the information rectified. If the creditor does not properly rectify the issue within the specified timeframe, have the three credit bureaus remove the negative information. As you work through the inaccuracies, you should be left with only the credit that needs to be cosmetically repaired and/or paid off.

Paying on time and paying as much as possible, requesting the creditor to assign more favorable "pays as agreed" terminology to your account for any listed as "late," lowering your credit limits where necessary, reducing the number of active credit cards, and actively staying on top of your credit not behind it, over time will help increase your credit score and get you back on track.

It should be noted that filing for bankruptcy and having collections or tax liens reported against your credit report is the least optimal "bad credit" situation you can be in. The steps above can start you on your road to recovery but will not remove the wounds that will be inflicted. Bankruptcy can appear on your credit report up to ten years, where as tax liens and collections stay on for seven. That's quite a number of years to wait before you get back on your feet. Regardless, it's worth your while to repair the damage and as soon as you are ready to rebuild your credit, find a credit-building vehicle that will jumpstart you on your way.

Find a credit card that allows you to charge products and services, with no credit check, you're approved regardless of credit history, and has credit limits up to $10,000. Many of these credit cards have no annual fee. Get started moving your credit in the right direction. And remember pay on time and don't over-extend yourself.

Favorable Tip:It is a good idea to acquire your credit report periodically, at least once per year. Under Federal law, you are entitled to one free report per year from each of the three credit bureaus. Access your free credit report online or contact each of the three credit bureaus directly: Experian, Equifax, and Trans Union.

Maximum Return On Your Credit Cards

There has been an explosion of credit cards that specialize in certain benefits over the last five years; reward points, cash back, 0% transfers, credit monitoring, discount gasoline, money-market savings, etc. So how do you get the most return from your card, particularly when their plans change?

(Presuming you never, ever carry a credit card balance – interest charges and potential fees will more than consume any side benefit that a card can offer.)

In the old days, the big benefit was airline miles. Let’s see how well that works out. The average airfare for a ticket that was paid for with credit card airline miles is about $400. And the average program requires 25,000 to 35,000 miles to be credited a free ticket. Since miles are normally accrued dollar-for-dollar, the average benefit is between 1 to 1.5% of what you spend. More reference material for this article is available at http://investing.real-solution-center.com.

Now we are starting to have something to compare. If you get an offer for a 1% cash back credit card, you’d be slightly better off getting the airline miles. But in my opinion, the many cards offering up to 5% cash back are the best deal, as long the fine print lines up. First, there are normally limitations on the shops where the 5% applies. You want a card that applies the 5% to where you spend the most of your monthly income. The credit card industry calls these ‘everyday purchases’, such as groceries, drug stores, and gasoline, but exclude warehouse clubs. You should get a card with the widest number of retailers where you commonly spend money. Or, get a specific-store card for those large one-time purchases. For example, if you are buying new kitchen appliances from Sears, apply and use their card for the purchase and you normally get 10% off. You can cancel it later when it has a zero balance.

The next 5% cash back problem is an annual limit. Citi Dividend credit card limits your annual earning to only $300. If you have some big purchases, you may have spent $5,000 on your credit card in the first month, and you’ve hit your cash back limit already. So guess what, you are going to stop using that card and start using a different 5% cash back card until you’ve used up that limit as well. Use them up and move on. American Express currently has a card called Blue Cash for bigger spenders. It offers only 1% cash back until you spend $6,500, and then it pays 5% cash back until you’ve spent $50,000. But there aren’t nearly as many AmEx merchants as Visa/Mastercard merchants. (Again, AmEx and others may have exclusions like purchases at warehouse clubs). You can compare dozens of credit cards from directory websites like www.allstarcreditcards.com.


Getting the most from your card is like going into battle: you can have a great plan in the beginning, but once cardholders start exploiting loopholes and creating unintended consequences, the card companies change their policies, it goes back and forth continually. So read all the fine print before applying, and squeeze some extra money from your credit card purchases this year.