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: Bradley Sproson
Your credit history is important; in fact, in this day and age, only family and your time are more important than your credit history! The first time you established a payment commitment over a period of time for a purchase, you began your history of credit, and the credit bureau created your account. Payments such as the electric company, a rental agreement, a cell phone, a car payment or a low-rate credit card which you also have a responsibility to repay are not reported to the credit bureaus as a part of your credit history. They can, nonetheless, be important in your financial history.
Payments that originate from a company where you would be paying “on time” make up the records that comprise your credit history in our Nationwide Agencies which are commonly called the Credit Bureaus. There are three of these Bureaus that collect everyone’s payment information: Equifax, Trans Union and Experion. They are each separate, but they hold equal weight and all three are used for consideration in obtaining a loan. Generally speaking, they all collect, hold and report the same information. Obtaining the contents of your credit report (or history) is the first step in taking control of your credit history.
Establishing Good Credit
Whether you are a homemaker, a student, a businessman or a blue-collar worker, establishing credit is necessary because sooner or later you are going to want to purchase something “on time,” whether it is a house, car, or another major purchase. There are some simple ways to go about establishing and building your credit.
Determine your current financial condition. Where do you stand with all of your payments right now? Banks and other lending agencies WANT to lend money to qualified consumers and businesses as much as you want to borrow from them! Interest is a major source of their profits. Most people could not afford “big ticket” items without having access to credit. It is important to begin establishing good credit as early as possible.
Keep a close watch on your checking account. If you don’t have a checking account, open one now and get a debit card. This will not add to your credit report, but it will show that you can handle money and do so responsibly.
Private corporations often times have their own system of credit scoring within their company. That is why it is so important to keep your all your monthly expenses up to date with at least the minimum payment due. This establishes your credit in a positive way. If a creditor sees too many late payments or skipped payments, you might not get the credit you desire.
A savings account would also be beneficial in providing a record. Saving money is a good habit to get into and it would help in case you need a small down payment for your purchase. By having a reputable bank account, paying all your living expenses, such as, electric, telephone, rent, cell phones, cable, etc., on time, including the “time” payments that are part of your credit history, you are well on your way to establishing a good credit history.
Banks or other lending agencies consult your credit history to obtain information on how responsible you’ve been repaying past loans. They consult one or all three of the Credit Bureaus here in the U.S. and, in recent years, they mainly look at the credit score that each bureau accumulates on your report. Paying all your bills on time, and managing your money well goes a long way toward developing the skills necessary to manage credit well.
Credit Scores
Creditors, mortgage companies, and others considering you for possible credit will combine all three scores and average the three to get your final score. This number will tell them in a glance if you are a good loan-risk. Then, depending on the creditor, they can look at your report more closely to get any further information.
Typically, a score of 550 – 600 is average; 600 – 700 is good; and above 720 is excellent. If you scored 880 – congratulations – you have just won the credit lottery!!
Keep in mind, none of these criteria are written in stone. As mentioned above, by cleaning up any errors, and making your monthly payments on time, you can correct and clear up a sagging report in a matter of months. It requires some work, but it’s not that hard.
Just remember, if you over-expend each month and “juggle” your bills, it becomes a part of your report and a company will notice this pattern. It is very important to be consistent in your on-time payment of all your obligations.
Students and Housewives
If you are just beginning to establish credit and taking responsibility for your credit report – WELCOME! You are in a good position. It’s time for you to start your history, and start it right.
Having no payment history at all does not work against you – but it does not work FOR you either. You need some sort of record of payments to be established on your credit reports from the Credit Bureaus, since this is where the financial world goes to see if you are a stable and responsible consumer.
To begin building credit, apply for and get one or two credit cards from a gasoline company or a department store with a low credit line. Whenever the card is used, pay it off immediately – that month! This way you will not be paying any interest fees on your purchases, which saves you money. This also helps you to establish good credit. In no time at all you will have a pattern of consistent repayments on paper.
Credit Cards are NOT the Enemy
Contrary to what some people believe, credit cards are not the enemy in establishing your credit! You simply need to pay them off in the 30-day grace period. A car or truck, anything sold on a rent-to-own basis, appliances, trips, credit cards, and mortgages are all on your credit report.
If you have credit cards and don’t pay the balance in full every month, interest is accumulated. If you pay your payment late, there are late fees added as well. Then the balance due escalates into a higher balance and begins a vicious cycle. If you have experienced this terrible cycle, you will know from experience – if you don’t pay your credit card balances off each month, the balance accumulates and if you pay your payments late, these show under 30, 60, 90 days in your history both on the account and in your credit records. Plan to pay them off monthly.
If you can’t do this – Get out quickly!
Cut up your cards and reduce your spending habits. No one wants the possibility of a bankruptcy on your credit report if you can help it! If you let your credit cards go into delinquency, they are working against you on establishing viable credit. It’s better to practice some patience and wait until you have the cash to purchase that item that you desire than to end up in financial stress.
Remember don’t let yourself get out of control with your spending – It’s easy to do! Focus on paying your bills on time.
All your payments work together to create your credit profile or credit history. The important thing to remember is to pay your balances on time, and always pay at least the minimum due to keep up to date.
Restoring Credit
What we have been talking about is the way to take control of your credit history. You can’t be in control of your finances if you are not aware of your history and your patterns of spending. If you have found yourself in the position of restoring your credit to a more positive place – don’t despair. It’s not as difficult as you may be thinking, but it will take some restraint in your buying habits and developing a budget that will work for you and your family.
