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The Importance of Good Credit

The Credit Counseling Experts of Clearpoint Credit Counseling Solutions Explain Credit

Have you ever been turned down for a loan or an apartment lease and wondered why? It could be due to your credit history. Let's face it - our credit says a lot about who we are. It is our financial report card, and can affect many aspects of our lives. Professional credit counselors at consumer credit counseling services agree that having a good credit history is imperative to leading a financially fit life.

What is credit?

Credit is defined as a contractual agreement between a lender and a borrower in which the borrower assumes something of value, and agrees to repay the lender on a future date.

So how does it all work? When you apply for credit (say a loan or a credit card), the lender has to decide if you are a good candidate for receiving the loan. The lender's decision is based heavily on your credit history. They have to assess the level of risk involved if they are to extend credit to you. If you have displayed a poor repayment history, it is less likely that you will be approved for the loan or a line of credit.

Who is actually looking at your credit record, you might ask? Well, you may be surprised to learn that it isn't just credit card companies. In fact, employers, landlords, and insurance companies can also gain access to your credit record. They are interested in reviewing your past payment history and spending habits to determine if you are a responsible financial consumer. If you have demonstrated an inconsistent payment history in the past, then this is a good indication that you may do the same in the future.

Credit Reports - How your credit record is organized

Credit reports portray an image of you by reporting your financial credit and personal contact information. There is a lot more that goes into a credit report than actual credit card information. Factors such as how much total debt you have incurred, the number of credit inquiries that have been made on your credit history, and how long it takes you to repay your debts are also detailed on a credit report. Also, if you have had any liens or bankruptcies in your credit history, these will also appear on the report. Another important factor included on a credit report is a three-digit number called a credit score.

Credit scores are one of the most influential factors lenders use in deciding whether to grant you credit. The number is comprised of several factors:

• Payment History - 35%
• Outstanding Debt - 30%
• Credit History Length - 15%
• New Credit Applications - 10%
• Your Credit Mix - 10%

This information is then compared with similar information from other consumers to determine your credit score. The number can range anywhere from 300 to 850 - the higher the number, the better your score.

Did you know that you are entitled to receive one free credit report each year? You can obtain this report by visiting www.annualcreditreport.com or calling toll-free (877)322-8228. You can also request your credit report from one of the three major credit reporting agencies - Equifax, Experian and TransUnion. Once you have obtained your credit report, it is important that you check for any inaccuracies. Many consumer credit counseling services offer credit report counseling to assist consumers improve their credit reports.

Build Your Credit Report

Now that you know a little more about how credit works, what can you do to improve your credit record?

What do you do if you have bad credit and need to get back on the right track?

• Open new accounts and make payments on time. This is a key step in rebuilding your credit. You can start by opening department store or gas cards.
• Maintain low balances on your cards. Try not to carry a balance of more than 30% of your credit limit.
• Make payments that are higher than the minimum required. By doing this, you will demonstrate responsibility and good credit habits.
• Consider a secured credit card. They are guaranteed by a deposit that you make with the credit grantor. The cards offer the purchasing power of a major credit card. Just make sure the grantor reports payment histories to one of the three major credit reporting bureaus so you're building your positive payment history.
• Ask for help! If you are not able to open a new account on your own, you may ask a family member or friend to co-sign for you.

Get Guidance from the Experts

There is so much to learn about the importance of maintaining good credit that it can be overwhelming if you don't know where to start. It may be a good idea to seek the help of a consumer credit counseling service to educate you on the essentials. A reputable credit counseling service such as ClearPoint Credit Counseling Solutions, can also educate you on the ins and outs of credit reports and credit scores. You can learn how to retrieve, review, and interpret your credit report as well as strategies for improving your credit score over time.