How Credit Word is Helpful
Lots of people were hit hard by the recession. With unemployment rising and little job security the economic environment was depressing. It was easy to throw your hands up in despair. The recession has moved on and unemployment figures have halved since their peak of double figures. However there are still numerous problems in society, not least of which is the failure of individuals to understand the importance of their credit score and the things they can do to improve it. There is no magic involved, just a little care and attention.
The process begins by obtaining your credit report as the law allows, free of charge. You are entitled to one annual report from the three credit bureaus and you can check updates which will happen on a monthly basis online. If you are not aware of the contents of your three reports there is not a great deal you can do to improve things. There may be differences between reports because each bureau acts independently and includes the information it receives.
Sort Out Any Errors
You might be surprised the number of incorrect entries that make their way on to reports on a regular basis; the Federal Trade Commission reported a couple of years ago that 20% of reports are inaccurate, harmed by details that should not have been entered against specific individuals. If you don't check the detail and just accept the score you may be short changing yourself. Where you find an error you should ensure that you put your observations in writing and send them by certified mail. The law demands that the credit bureau concerned must investigate and respond within a reasonable period, removing any entries that are found to be false.
Credit Card Accounts
Ironically one thing that can hurt your credit score is paying off a credit card balance and closing the account. It is closing the account that causes the damage because it will change your ratio, debt to available credit for the worse. You should look to use only 30% of the credit you have at your disposal if you want to give a good impression. Certainly paying off a balance that will be incurring a high rate of interest makes absolute sense. It can for example be done by getting a personal loan for the express purpose of settling the account.
There are companies that claim they can repair your credit report. Certainly it is tempting to believe they can. In reality there is little they can do that you cannot do yourself. There are no guarantees and you need to recognize that and avoid handing over money against promises that cannot be fulfilled legally.
Your own actions will repair your credit history, albeit fairly slowly. If for instance you make timely repayments top realistic loans -15% interest rate that will improve your status month by month. It is worth the effort because it will improve your chances in the future on such things as mortgages.
You should take control yourself; if you learn the skills of money management there is no reason why you cannot get credit to work for you. Debt is not automatically bad. Every time you look for credit that enquiry results in someone assessing your report. Even that small investigation may harm your score and you need to be aware of that. That said, there are two obvious forms of debt that are positive:
- Student loans. A good education increases the chances of increased earnings during a lifetime by far more than the cost of any student loan.
- Mortgages. Few people are able to pay cash for real estate, especially in the early years of their career. The mortgage market offers cheap money over an extended period to allow an applicant to buy a home which over the medium to long term should appreciate in value to far outweigh the interest paid over the term. The recession was an obvious exception but that does not invalidate figures over a longer period.
Everyone lending money charges interest. When it comes to credit cards the rate is usually very high. It is applied to month end balances with the result that those just paying the minimum each month will hardly see their balance come down. Ironically another form of debt is a good solution. A personal loan is much cheaper and available to those in regular employment who make a realistic application and appear capable of paying all the instalments through the whole period of the loan.
American society is built on credit and debt. The recession highlighted how fragile many people's finances were and few were able to improve them in the immediate years that followed. There is less of an excuse now with the economy on the move again but there are no real signs that society as a whole has committed itself to financial management by following a budget. It does spell serious problems for many people in the future with retirement a potentially difficult time for huge numbers. Some will hear the call to action and some will ignore it. They do so at their peril.