Good credit plays an important role in your financial life. It is important not only for obvious things like applying for a loan or getting a credit card, but also for less obvious things like applying for a cell phone, renting a car, and maybe even getting a job. Click here to download the package "The Importance of Credit History and Successful Saving," or read below.
- What is a credit report and score?
- Why saving is so important for good credit?
- How to start saving?
- Why good credit management is so important?
- 5 tips for building good credit
- Is a credit repair a good idea?
- What is loan consolidation?
- What is a debt management plan?
- Where can I get help with debt that I can't pay off?
- FDIC template for secure accounts
- Frequently asked questions about credit
- Additional resources
WHAT IS A CREDIT REPORT AND SCORE?
A credit score is a three-digit number that measures how likely you are to repay a loan on time. It uses information from your credit report to predict the risk that you will not repay this loan 24 months after it is scored.
A credit report is a statement of your credit history. It indicates when and where you applied for credit, who you borrowed money from, and who you still owe. Your credit report also tells you if you have paid off a debt and if you make monthly payments on time.
How to get a copy of my credit report and score?
The three nationwide credit reporting agencies – Equifax, Experian and TransUnion – are required by the Fair Credit Reporting Act (FCRA) to provide you with a free copy of your credit report every 12 months upon request. (Available at www.annualcreditreport.com)
How much does it cost?
You need ca. Pay $14 to receive an additional credit report within 12 months of receiving your free report. To get a copy of your credit score, you have to pay about $14 at one of three nationwide credit reporting agencies.
Where to get help if I find something wrong?
You are responsible for correcting incorrect or incomplete information in your report. There are two things you should do if you find an inaccuracy. First, write to the consumer protection agency (from which you received the report) to let them know what information you believe is incorrect. Consumer Reporting Companies are required to investigate all questionable information and must forward all relevant data to the organization that provided the information. Second, tell the lender or other information provider in writing that you dispute a point.
Who has access to my credit report?
The FCRA determines who can access your credit report. People who have access to your credit report include lenders, insurance companies, employers and other businesses that use the information in your report to evaluate your applications for credit, insurance, employment or renting an apartment.
WHY SAVING IS SO IMPORTANT FOR CREDIT?
It's important for all Americans to have savings. A savings account allows people to pay for emergencies, gives people financial freedom and can contribute to a higher credit score. A high credit score can make it easier to rent an apartment, get utilities and even get a job.
Pay for emergencies
Having a savings account allows people to pay for emergencies themselves, rather than turning to high-interest credit cards or payday loans. Not being able to pay off these types of loans can severely hurt your credit score.
A savings account will allow you to pay your bills on time. Paying your bills on time can lead to a higher credit score.
HOW TO START SAVING?
When it comes to saving, the sooner you start, the better. It's not an overnight act, but a process that happens gradually and grows over time. Just remember: slow and steady wins the race.
Making ends meet can be a challenge. And you may be wondering how it's possible to save some money. But every amount saved – a quarter, a dollar – is progress. Those quarters and dollars add up. If you get in the habit of regularly contributing to your savings, you'll see the money you set aside grow.
The first thing you need to do to start saving is to take a look at your finances and make sure you are spending less than you are taking in.
- Create a budget
- Look for ways to reduce your expenses
- Set up
WHY GOOD CREDIT MANAGEMENT IS SO IMPORTANT?
Good credit plays an important role in your financial life. It's important not only for obvious things like applying for a loan or getting a credit card, but also for less obvious things like getting a cell phone, renting a car, and maybe even getting a job.
Managing your credit score also helps you save for a rainy day. A strong credit history reflected in a good credit score allows you to qualify for lower interest rates and fees, putting aside extra money for emergencies, retirement and other smaller unexpected expenses. Reducing debt and increasing savings reduces stress and leads to greater financial freedom.
The good news is that having a good credit score is not difficult. Just follow these five basics of good credit management and you will build and maintain a credit history that will allow you to get the credit you need when you need it.
5 TIPS TO BUILD GOOD credit
To establish a credit report, you must have an open, active credit account. To get your first credit account, talk to your bank or credit union.
Make at least the minimum payment due every month and never be late. Delinquent payments and payments that don't meet at least the contractual minimum have the most immediate, negative impact on your credit report and credit score.
Keep your balances low compared to your available credit limits, this is a sign of good credit management and shows lenders that you are a good credit risk. Your utilization ratio, also called your balance limit ratio, is a key component of your credit score.
Don't apply for multiple accounts in a short period of time. If you take on large amounts of debt in a short period of time, it's a sign of high credit risk. Apply for credit when you need it, and only for the amount you need. Just because a loan is offered doesn't mean you have to accept it.
- Demonstrate good credit habits over long periods of time
To have good credit scores, you must demonstrate good credit habits over a long period of time.
IS CREDIT REPAIR A GOOD IDEA?
Every day, companies approach consumers with poor credit and promise to clean up their credit report so they can get a car loan, mortgage, insurance or even a job if they pay a fee for the service. The truth is, these companies can't create an improved credit report for you using the tactics they advertise. It's illegal: No one can remove accurate negative information from your credit report.
WHAT IS LOAN CONSOLIDATION?
A Direct Consolidation Loan allows a borrower to consolidate (combine) multiple federal student loans into a single loan. The result is a single monthly payment instead of multiple payments. Use a loan consolidation calculator to find out if this is a good option for you.
WHAT IS A DEBT MANAGEMENT PLAN?
Organizations that advertise credit counseling often arrange for consumers to pay off their debts through a debt management plan (DMP). With a DMP, you pay money into a debt counseling organization each month. The organization uses these deposits to pay your credit card bills, student loans, medical bills or other unsecured debts according to a payment plan worked out with you and your creditors. Creditors may agree to lower interest rates or waive certain fees if you repay through a DMP. Some organizations that offer DMPs have deceived and scammed consumers. If you are paying through a DMP, contact your creditors and confirm that they have accepted the proposed plan before sending payments to the organization handling your DMP.
Where to get help with debt I can't afford?
Most communities have agencies that can help you manage your debt. The most helpful and widely available are the nonprofit Consumer Credit Counseling Services (CCCS). CCCS counselors can work with you privately to help you develop a budget, figure out your options, and negotiate with creditors to repay your debt. Call 1-800-388-2227 to find the office nearest you.
If your debt is too high, you should consider bankruptcy. Bankruptcy can give you a fresh start, but it is a serious step that can make it harder to get credit for years after declaring bankruptcy. Call your local Legal Aid or Legal Services office for advice on how to proceed. If you don't qualify for their services, ask them for a referral to a bankruptcy attorney
FDIC MODEL SAFE ACCOUNTS TEMPLATE
The FDIC Model Safe Accounts Template provides guidelines to insured institutions for offering low-cost accounts that are safe and affordable for consumers. Accounts reflect the following guiding principles: transparent and reasonable rates and fees, and access to banking services insured by the FDIC.
FREQUENTLY ASKED CREDIT QUESTIONS
Do missed payments affect my score?
How many payments you miss, whether you fail to pay the debt at all, and how long ago the late payments were made is important. The further in the past a late payment is, the less impact it will have on your credit score and credit decision. That's why it's important to catch up on your payments when you fall behind.
How can I get a loan if I can't open a credit account??
If you can't get a credit account through a bank or credit union, you may need to get a friend or family member to co-sign for you or add you as an authorized user to an existing account.
Will closing accounts increase my credit score?
Be careful about closing accounts. This reduces your available credit limit and increases your overall utilization rate, making it appear that you have suddenly taken on more debt. The result is a temporary negative impact on your credit score.
Will applying for new accounts increase my credit score?
Each time you apply for credit, an inquiry is added to your credit report. Inquiries are evidence that a lender has reviewed your credit report in response to your loan application. They indicate that you may have new debt that is not yet listed as an account on your credit report and therefore represents an unknown risk to lenders. This is why new inquiries can have a small but significant impact on your credit score. However, this influence is temporary.
How does buying a car or home affect my score?
Requests for car purchases and mortgage loans are unique. Because lenders know you are looking for the best rates on auto and mortgage loans, inquiries for these types of loans within a short period of time are counted as one inquiry by credit scoring systems. This way, you can find the best rates with little or no impact on your credit score.
What is the first step to rebuilding my credit score?
The first step to rebuilding a strong credit score after credit problems is to bring your accounts current by paying any remaining past due payments. However, before your credit score improves significantly, you need to show that you have regained control of your credit by making on-time payments over time. The more severe your past credit difficulties, the longer it will take to rebuild a positive credit history and strong credit scores.