From buying a home
to finding a dream job, there is one looming shadow which controls everyone
like a puppeteer controlling a puppet. Credit
pulls the strings which grant access to homeownership, employment, and lower
interest rates. The importance of credit is undermined by the
confusion many Americans have about their three little numbers. Below is not an exhaustive explanation of
credit, it merely scratches the surface and breaks down the basics of what you
need to know about your credit.
What
is Credit?
According to JP Morgan Chase &
Co., credit is your financial trustworthiness.
Credit measures how likely a borrower is to pay back the loan.
What
does Credit Control?
Among other things:
·
Helps secure lower interest rates
·
Improves opportunities to secure a
credit card and other loans
·
More options when shopping for loans
and a mortgage
·
Increased spending limits
·
Quicker approval for renting
·
Better rates on car insurance
·
Can help avoid paying a security
deposit for utilities
What
is on your Credit Report?
There are four
sections on your credit report. These
sections give reporting bureaus important information which is then used to
calculate your credit score. By law, you are guaranteed a free credit report
once every twelve months. To order your
credit report visit annualcreditreport.com.
your credit score is NOT included on your credit report.
1. Identifying
Information
This includes your name, birthdate,
permanent residence,…
2. Open
Lines of Credit
Any account you have open being a
loan, credit card, mortgage … is considered an “open line of credit.” This section outlines when the account was
opened, the credit limit/ amount of the loan, account balance, and payment
history.
3. Credit
Inquiries
Every time someone checks your credit
within the last two years, it is notated on your credit report. This section includes both voluntary inquiries
(inquiries done by your request) and involuntary inquiries (pre-approvals for
loans and credit you have not requested).
4. Public
Record and Collection Items
Information made public through court
proceedings, collection agencies, bankruptcies, foreclosures, liens, wage
attachments…are included in this section.
What is
your Credit Score?
Your credit score
is calculated by three different credit reporting bureaus: Experian, Equafax,
and TransUnion. Each company calculates
your credit score based on their own formulas developed to determine
trustworthiness. Since there are three
different reporting bureaus and they employ three different formulas, you have
three different numbers which compose your credit score. Even though there are three different
formulas, there are several common elements used in each equation.
1. Types
of Credit in Use
·
Loans
·
Credit Cards
2. Payment
History
·
Do you usually pay before the bill is
due?
·
How often do you let your balance
roll over?
3. Amounts
Owed
4. Length
of Credit History
·
How long have you had a particular
line of credit?
5. New
Credit
-NWP
