Managing Credit
Getting credit can seem like the easiest thing in the world – we all receive credit card offers in the mail on what seems like a daily basis. For that reason, it is all too easy to fall into the cycle of credit card debt, which damages your ability to get credit for things you really need (like a home or auto loan). Here, you will find hints and tips for managing your credit and making choices that will help you reach your goals.
What is credit? Though we used the example of credit cards above, credit encompasses much more than cards, and includes any debts you take on that you do not have the ability to pay for in cash at that moment. Credit is also how lenders measure your reputation, your ability to pay, and the likelihood that you will pay your debts.
How is credit measured? Credit is made up of many elements, including things like your income, past borrowing and payment history, and the likelihood that you will pay your debts in the future.
What is the difference between a credit report and credit score? Credit reports detail your credit history, as reported by lenders, utility companies, landlords, and others. These reports contain a wealth of information, including your address, the types of credit you use, balances on any credit cards or lines of credit you have open, and how much new credit you have opened recently. By federal law, you can access your credit report for free at least once per year.
The companies that compile credit reports have created a joint website available here, where users can access this information.
While many companies claim to offer free credit reports, many also require users to pay a fee to obtain a credit score. A credit score is a number assigned to the information in your credit report that lenders use to make decisions on offering you new credit. The formula used to calculate your credit score is proprietary, and for that reason companies can charge you to access the information.
How can I improve my credit? Keeping track of your credit can pay off in lower car payments, lower mortgage interest, lower insurance rates, and better job opportunities. Fortunately, there are several tools available to help you do this.
One very easy way to improve your credit is to correct any errors that may exist on your credit report. While the agencies that compile these reports do all they can to make sure they are accurate, errors do sometimes occur. If you find errors, report them immediately to the agency in writing. By law, these agencies must investigate reported errors and respond to you within 30 days.
You can also improve your credit by paying your bills on time, and paying off your debts as soon as you can. With credit cards – the most common form of credit – it is a best practice to keep balances low, and pay them off regularly. Other methods of improving your credit include asking a friend or family member to co-sign on a small loan and paying it back on time, and opening and using a small savings account.
If you find yourself in need of credit assistance, please contact the Portage County Consumer Credit Counseling Service.