Basics of Credit
If you’re here then obviously you’ve been hearing the word “credit” thrown around a little bit. I’d like to go over a few basics about this topic to hopefully help you get a better understanding on the basics of credit.
In a simplest of ideas, credit is your reputation. If you pay your bills on time then you have good credit. It’s that simple, but it isn’t that simple.
The reason that credit is important is if you are looking for a credit card, loan, or getting a low interest rate for any of these, your credit rating will dictate if you do get approved and what kind of interest rate you’ll get as well. If you have credit problems, if might be difficult in getting a loan and at a decent interest rate.
The other thing you’ll hear about is your credit score. This is the number that is assigned to your credit history. The look at your spending habits and how well you’ve made your payments on time. Your credit score ranges from 300 to 850 where most are looking for a score of 660 and higher.
Just so you have an idea, here are some factors that determine your credit score:
1. Have there been any late payments?
2. How have you used your credit? If you have more than one credit card and they are maxed out or close to the max, you are more of a risk.
3. What is the length of your credit history? If you’re 18, you will pose a greater risk than a person that is 40 years old.
4. How many times you have applied for credit? Every time you apply, it gets recorded. Apply often and it will greatly impact your credit.
5. The different types of credit you have. Some carry more risk than others.
Now you have a few basics of credit and you should be wondering what is next. Getting an actual copy of your credit report is what you need. There are three credit-reporting agencies – Equifax, Experian, and TransUnion. The Fair Credit Reporting Act (FCRA) requires each of these institutions to provide you with a free copy every 12 months by request.
This is your first step. Contact each of these companies and have your credit report sent to you so you can see where you stand.
Disputing your credit report
If you want to dispute something on your credit report, the FTC advises that doing so by mail is the best way. They are going to want to see proof of your dispute so be sure and gather all of these things up. If a late payment is reported that you know isn’t correct, attach a copy of something like a online receipt or statement that shows differently. When you do this, there is no way you can be denied. So many people insist that the reporting agencies “take their word for it” but it never really works out for them.
You should also send your dispute by certified mail and request a return receipt. The credit agency is upheld to investigate your dispute within 30 days unless they deem it without merit. When the investigation is over, the agency has to report back to you the results in writing and if there will be a change or modification to your credit report.
If you get changes made in your favor, there are a couple of options to you that I highly recommend you take advantage of. If anybody requested a copy of your credit report within the last six months, they will report to them any corrections made. If a copy was requested based on your employment, you can request that the corrections be sent to them as well up to two years before. The basics of credit are just that, basic. It doesn’t take much to realize that spending less than what you earn can completely turn around your credit score.