ABCs of credit and its importance in your life
In today’s life, you simply cannot do without credit. If you wish to buy a home, you need a mortgage loan; for buying a brand-new car you require an auto loan. Even if you want to go for higher studies you may require a student’s loan. Credit has therefore become a part of our day to day life.
It is our economy which runs on credit and therefore, the importance of credit in our lives and in your life too, cannot be undermined. It is one of the most important qualifying factors, which lets you obtain new credit, or empowers you to get a rent or buy a house, and maybe in getting a good job too. Truth is that our life depends on credit. Therefore, you need to be aware of the basics and all of the nuances of credit along with credit rating, and your credit score too.
Credit – What is it?
Credit mainly is the factor which shows the ability of a borrower – who can be an individual, a company or even a country. On the other hand, credit is also the agreement in between the person (borrower) who is going to borrow, and the person (creditor or lender) who is going to provide the money. So, it is on the basis of credit rating that an application for new credit may get approved. or rejected by the creditor or the lender. Therefore, the credit agreement depends on the credit of the borrower.
Thus, it is extremely crucial for you to have good credit, so that your application for a credit card or personal loan, mortgage or car loan and so on, gets approved at once. If you borrow more frequently, you will owe more to the creditors, and this can lead you to debt. This again, results in reduced credit score and tarnished credit rating. However, it is also true that without you borrowing any money, it may never be possible for you to establish or build any credit. Furthermore, without credit, it may become tough for you to obtain a credit card or a mortgage, or car loan and so on.
So, it is important not only to have established credit, but a good credit score and good credit rating too. If you have good credit rating, it is considered that you are a responsible borrower, who has the capability to strike the perfect balance in life. This helps you to get more credit in the future, and even a good job.
What is the credit report?
The credit report is nothing but a copy which serves as the notebook or the record keeping list. The credit reports contain all of the details of the borrower starting from his name, and address, and employment details, the identification number, the accounts and the account details. In addition, the credit reports also contain details of any lawsuits or liens, bankruptcy and judgments. It contains the date when information was first reported by the creditor and also the date when any information was last updated by the creditor.
In addition, the credit report also contains detail of the consumer statement, which mainly states the personal comment from the consumer which was submitted to the credit bureaus. The summary information contains the details of the accounts and your payment history. The payment history again contains minute details of the account types and the number of accounts you have, along with details of balance on these accounts, the payments made, the accounts which are current, the delinquent accounts, all of the derogatory comments, and even more.
This section also contains details of the accounts which were opened and closed, the details of the public records under your name, the money which was involved with regards to the public records. These public records are the bankruptcies, the tax liens, or any other forms of civil actions. It also contains inquiries made by financial institutions either after your application for credit, or of their own accord.
Credit score – How is it compiled?
The FICO score or the score compiled by the Fair Isaac Company, is the one that is considered to be the most important and significant at the same time. You can access the credit score once in a year, for free from annualcreditreport.com. The FICO score is compiled on the basis of the information provided through the credit reports. Therefore, the credit score just like the credit report is a reflection of your financial habits. However, after collecting the personal information, it is turned into a 3 digit number ranging in between 300 and 850. The higher the credit score, the better are your chances for getting all kinds of new credit as per your needs, requirements and affordability.
In general, most of the people have the credits core in the range of 50 to 700. However, it is considered to be good, if your credit score is more than 720. If you have either 720 or more than that, you are considered as a safe borrower, who has the ability to maintain the on-time payments. Therefore the APR and the interest rate charged is supposedly going to be low enough. On the other hand, if your score is lower than 650, you may not be able to get any new credit and even if you do, the interest rate charged is going to be quite high.
Getcreditnews.com aims to provide you with the latest updates (credit news) from the credit industry. Our objective is to help you to learn the basics of credit and to build up an impressive credit profile. A good credit history helps you to improve your credit score. Thus we have developed an article section from where you can gain knowledge on how to improve your credit history. So keep visiting our site and update yourself with the latest happenings in the industry.