What is Credit?
Credit is basically borrowing money and how much you borrow. Your credit is a representation of you and influences the decisions that lenders may make about you regarding your financing options. It tells lenders if the borrower is disciplined, has integrity and is responsible.
For instance, if you have a great score, you are an A+ candidate to borrow money, as well as receive low interest rates and better option than a borrower who does not have good/excellent credit.
WHAT IS A CREDIT SCORE?
A credit score is numerical expression (3 digit number) that is an analysis of your credit worthiness. Your payment history (30%), amounts owed (35%), length of credit history (15%), new credit (10%), and types of credit used (10%), are all 4 factors that are included in your credit score.
WHY IS IT IMPORTANT TO KNOW ABOUT CREDIT?
Well if it’s not obvious yet, then it soon will be! It’s important to know about your credit because once you have good credit you have multiple options of what you can do, where you can go, what you can buy!
You can buy a house, get your dream car, pay for those multitude of bills that seem to keep piling up and you can never get rid of! Your credit is what tells your next landlord if you will be a good resident or your employer if you are responsible and disciplined. There are so many reasons for you to care about your credit, so please go take a peak today!
WHAT CAN HELP RAISE YOUR CREDIT SCORE?
First thing that can you help you raise your score is by adding on an account or two and taking great care to follow all the rules of credit. Within 6 months you should start seeing an increase in your score!
WHAT IS THE FASTEST WAY TO BETTER CREDIT?
By obtaining a credit card!
Well first, why would you want a credit card? With those high interest rates?
Well let me tell you that there are multitude of options that you can choose from when it comes to credit cards. You can get travel rewards, cash back, student cards, secured cards, charge cards, 0% interest rates, 0% annual fees sometimes both!
It really depends on your credit. Many of these cards have reward programs that actually seem to put money back in your pocket if you are using it correctly.
Credit cards also help you build your credit! For instance, say you have no credit, you either bought everything in cash, you’re just starting off, or you just really didn’t take care of you credit like you should have.
Then you really need to look into the above credit cards I mentioned. Many financial institutions such as Capital One, Chase, Citi, Discover, etc. have pre-qualified offers on their website, meaning you can see if you would be eligible for a card without any hard pulls going on your credit report!
If you get approved it will show up on your credit report…AND if you take great responsibility for you card(s) then after a 6 months period you should start seeing you score increasing!
WHAT ARE A FEW THINGS TO LOOK FOR IN A CREDIT CARD?
Obviously it would be those APR (annual percentage rate) rates that are always tagged on to credit cards. Look at the terms before applying or give the financial institution a call and ask what the APR could be for a particular card you are interested in acquiring.
Another thing to look out for are the annual fees that some cards may have — sometimes they’re worth it and sometimes they’re not depending on how you use the cards with their terms. A few more things to look out for are your rewards and benefits that come with each card.
Credit card companies are running a business so you need to lookout for hidden fees as well, read the fine print when you are signing up for a card as well as the various fees that credit card companies are going to try and assess.
WHAT ARE COMMON MISTAKES PEOPLE MAKE WITH CREDIT CARDS?
One of the mistakes that many people make, including myself when I first started building my credit, was that I obtained too many! The more credit cards you have the more likely you are to get into debt. This is due to not remembering every credit card you have and not remembering when the payments are due! What I did to fix this problem is I set up payments to be automatically drafted out of my account, but it something to be wary of, so use with caution.
The second mistake that people often make is that they misread the introductory rates and the fine print.
If you received a card for 0% interest rate and 0% annual fee to make a big purchase if you cannot pay off that purchase in the introductory term then your interest rates can sky rocket to 18%-24%! The best thing to do is always pay off your monthly balances so that no interest rates occur.
HOW IS A CREDIT SCORE DIFFERENT FROM A CREDIT REPORT AND WHAT CAN BE FOUND IN YOUR REPORT?
A credit report is a detailed report of all your accounts, your history on those account, details that you may have on those accounts (consumer disputes, fraud alerts, etc.). You can find your name, address, social security number, types of credit used, when you opened up your accounts, the balances that are on those accounts, collection accounts, new accounts, record of bankruptcy, tax liens and court judgments.
ANY FINAL TIPS?
- Take steps to improve both your credit report and credit score.
- Check your credit report regularly for errors.
- Make sure you make payments on time.
- Avoid maxing out your credit cards.
- DO NOT try to obtain to much credit at one time.
Remember, if you are unsure if an institution is going to pull your credit, simply ask them.
Tell them you do not want your credit pulled and if you are still unsure, simply have them write down their name and company name with the following statement, “I, (insert employee name), will not run the personal credit report for (insert your name).
Last, have the employee sign and date it for your records. It may sound like overkill, but you will have proof that they won’t pull your credit report. If someone does ping your credit score, having a simple written acknowledgment will be sufficient proof to remove the unapproved inquiry. Some of my customers have used this technique in the past and have successfully cleaned up wrongful inquiries.