WHAT IS CREDIT?
Many young Americans are not taught about credit.
We get a credit card in college and go on a spending spree, take out that
student loan, and car note. This is called debt and will affect your credit
score overall. But overall it depends on the person; if they’re smart with
their money and pay their bills on time, it will help. But if they are money
spenders, don’t have a plan before taking out a loan or getting a credit card,
it will affect you in the future when you want to buy that house.
Credit is your life, it’s your number. Some people
take their credit serious, while many of us young Americans don't. A credit
score in the United States is a number representing the creditworthiness of a
person, basically what are the odds that person will pay their debt or not.
Credit is broken in a FICO (Fair Isaac Corporation) score; this is what banks and other
institutions use to make lending decisions. The higher you FICO score the
better the interest rate and higher the loan amount. A FICO score is ranged
between 300 and 850. The median score for 2012 is 664.
Here is a graph on how each state is doing as of
November 30, 2012
HOW IS YOUR SCORE ASSESSED?
-35%:
Payment history– If you pay your bills late, such as credit cards,
mortgage, and automobile loans this will drop your FICO score.
-30% Credit
utilization (DEBT) - This is the ratio of your current revolving debt,
installment debt and open debt revolving debt is when the creditor allows you
to pay a minimum balance, you as the borrower have the option to pay the
minimum or pay it in full. If you pay the minimum you will have a revolving
account. Installment debt is when you have a fixed payment for a fixed period
of time. An auto loan is a good example as you’re usually making the same
payments for 36, 48, or 60 months. An open debt is the least common type of
debt. This is the type of debt that must be paid in full after every month. The
American Green Express card is a good example.
-15% Length
of credit history- The longer you maintain a good revolving account the
more positive it impacts your credit score.
-10% Types
of credit (Account diversity) - Do you have an installment, revolving,
mortgage, or consumer finance (alternate way of getting credit i.e. Payday loans,
rent to own loans, and car title loans).
-10% The
search of new credit- A hard credit inquiry, which is when someone applies
for credit cards, mortgage, auto loans, and personal loans all at the same time,
can affect your credit. It can drop your score by up to five points per
inquiry. Each inquiry is recorded in your personal credit report for two years but
the effect decreases at the six month or one year mark.
A SOFT INQUIRY
1. When a consumer wants to check their own report
2. Employer screening inquiries
3. Insurance related inquiries
4. Utility related inquiries
THREE CREDIT BUREAUS
A credit
bureau or consumer reporting agency is a company that collects various information;
once all the information is collected it provides a consumer credit information
or a credit report. Every country has its own credit bureau, and they do not
report amongst each other. So if you have a perfect credit score in Canada and
migrate to the United States and try to apply for credit, you will get denied
for lack of credit history.
In the United States the Three major bureaus are
Experian (FICO or FICO II), Equifax (BEACON), and Transunion (EMPRICA). You
will never have the same score with all three bureaus. They all do the same gather
information to ultimately create your credit score, but each bureau works with
different regions making them more dominant in certain areas.
ONE THING YOU SHOULD KNOW
In the United States you are allowed to check your
credit history once a year. The Fair Credit Reporting Act and its amendments require
that any national credit reporting agency provide a free copy of a credit
report for any consumer who requests it. A good website I recommend is www.anualcreditreport.com, if you
own an IPhone I recommend a great app that I use all the time and it’s called
Credit Karma(CREDIT KARMA APP DOWNLOAD)
No comments:
Post a Comment