Credit and why it's Important

Having good credit is important for a variety of reasons.? If you are in a boat where your credit is not the best, you are not alone.? There are methods that can be applied to improve your credit so that you can achieve your goals.

This article will explore what credit scores are and how they can affect eligibility for big ticket items such as homes, cars, or even getting a credit card.? Credit can be built and you can reach your goals if a solid plan is in place.??

What is Credit?

As defined via Google, credit is “the ability of a customer to obtain goods or services based on the trust that payment will be made in the future”.? Essentially, credit is your ability to buy something, regardless of value and that you be able to pay the debt off in the near future.? Being able to pay in a timely manner to meet that financial obligation equates to a good credit score.

What is Credit Score?

A Credit Score ranges from a value of 300 all the way to 850.? The higher the score, the more likely a consumer is predicted to pay his or her bills.? The higher a score, the more likely you are to get financing for a vehicle, house, condo or be accepted to rent an apartment or a house.

Credit Report Contents and Obtaining a Credit Report:?

A Credit Report contains the following information:?

• “Personal information about you”
• “Previous names”
• “Public Records”
• “Inquiries”
• “Accounts in default”
• “Bankruptcies” (within 10 years)
• “Negative Information” (7 years)
• “Past addresses and Social Security Number”
• “Accounts that are reported monthly”

(Loftsgordon & O’Neil, pg 21, 2020)

A credit report does NOT list anything about Religion, Race, Medical History, personal lifestyle or one’s friends.? (Loftsgordon & O’Neil, pg 21, 2020)

There are three companies that report credit information.? They are as follows:

• “Experian”
• “TransUnion”
• “Equifax”

(Loftsgordon & O’Neill, pg 12, 2020)

Credit Scores range from the following:

“300-629 Bad”

“630-689 Fair”

“690-719 Good”?

“720-850 Excellent”

(NerdWallet.com)

Factors Affecting Credit

There are several factors that go into the determination of a credit score.? Some of these factors are listed below:?

An individual’s income level, length of employment, job stability, and income to debt ratio all affect credit rating.? A credit bureau also determines the likelihood that an individual’s income will increase over time.??

The following creditor types will show up on a credit report when debts are past due:

• “Utility companies”
• “Local stores” - (One’s where credit cards are held)
• “Insurance companies”
• “Magazines and newspapers”
• “Doctors and hospital bills”
• “Lawyer fees”
• “Landlords and property managers “

(Loftsgordon & O’Neill, 24, 2020)

If debts are not paid and these are reported to the credit bureaus, this will have a negative impact on your credit score. Nevertheless, if debts are met with timely and consistent payments, your credit score will be positively impacted.

Getting your Credit Score

You can obtain a free copy of your credit report. It is a great idea to check your report yearly.

Resources for getting a free copy are as follows:

• “www.annualcreditreport.com
• You may call: ? 877-322-8228
• If you prefer by mail, the following address can be used:

Annual Credit Report Request Service P.O. .Box 105281 Atlanta, Georgia 30348-5281

There is a form that is available for this at www.annualcreditreport.com/gettingReports.action?

(Loftsgordon & O’Neill, pg. 13, 2020)

Building Solid Credit and mitigating debt

Now that the factors affecting credit are explored, it is important to investigate how to mitigate debit and build a solid budget.? If you are in debt, then implementing some positive changes can help.?

The first step is to look at spending and break down your budget into essential, recreational and modifiable expenses.?

?

The expenses that are pretty fixed are things like the mortgage and car payments.? Expenses that might be modiable with some research are expenses such as Cable, Internet, Car Insurance and the Electric bill.

You may be able to get a cheaper cable and internet provider; furthermore, you may also be able to raise home and/or car insurance deductibles.? If you have an older car, you can check the value on Kbb.com (Kelley Blue Book’s website) and possibly remove Collision if it is paid for.? Some insurance companies have a coverage called “Uninsured and Underinsured Motorist Property Damage Coverage”.? If you remove Collision, you may be able to add this coverage to protect yourself if you have a Collision with a driver who has no insurance or not enough to cover your car if something happens.? This coverage is not available in every state.? With food, you can shop for store brands or eliminate going to restaurants.? Meal planning on reducing trips to the grocery store can also prove to be a valuable cost saving tip.

Credit Card Debt - Approaches for Elimination:?

With Credit Card debt, you should focus on balances and interest rates.? If there is a high balance with a high interest rate, you may want to focus on that bill first and pay less on your other credit card debt, if applicable.? Here are some approaches when trying to eliminate credit card debt:

• Try to negotiate with a creditor to get a lower Interest Rate.
• Focus on the card with the highest interest first; this card will cost you a great deal over time.
• If a card has a lower balance; you may want to make an action plan to pay that one off first so that you can eliminate the card and focus on your other credit card debt.
• If the minimum payment is too great (Say you have multiple cards.), you may want to try to see if you can “temporarily” lower a minimum payment so that you can focus on one of your other debts.
• Some creditors will settle for you to pay a “lump sum” to settle a debt. If you opt for this option, it is important to get something in writing from the creditor that proves that there was a mutual agreement to satisfy the balance.? (Loftsgordon & O’Neill, 170-171, 2020)

Depending on life’s circumstances, obtaining good credit can sometimes be challenging.? Nevertheless, it is possible. Careful monitoring of score, awareness of debts and lifestyle curtailments can all have positive impacts on credit.? Having bad credit does not have to be a lifetime predicament. Good Credit is possible with perseverance and good management!?

References:

Dictionary.com. (n.d.). Credit definition & meaning. Dictionary.com. Retrieved February 16, 2023, from https://www.dictionary.com/browse/credit?

Free Credit Score - Learn About Your Score. NerdWallet. (n.d.). Retrieved February 16, 2023, from https://www.nerdwallet.com/l/free-credit-score?

Loftsgordon, A., & O'Neill, C. (2020). Credit repair: Make a plan, improve your credit, avoid scams. Nolo, Law for All.?