Life's journey is not always a straight and narrow road. There are detours, ruts, sharp turns or steep hills, and sometimes you need financial help to navigate through the rough patches. Loans and credit cards will give you this help, and your credit record is what determines what kind of credit you will be given and at what rate. That's why a good credit record is one of your most valuable assets, and one everyone should protect.
Credit is defined as the confidence in a borrower's ability and intention to repay. The level of confidence lenders have in potential borrowers depends on many factors, and since lenders typically don't know the borrower personally, they use a credit report and a credit score (FICO Score) to determine the borrower's creditability. FICO scores ranges from as low as 300 (worst) to as high as 850 (best).
Bad credit can affect you in more ways than you may realize. It can cause you to pay a higher interest rate on loans, plus, the amount of credit you can obtain can be affected. It could even cost you a job as many potential employers look at credit reports as a means of determining how responsible an applicant is. But on the other hand, having no credit can be as detrimental as damaged credit. Without a credit history, lenders don't have an adequate indication of what kind of credit risk you may be.
Your credit report provides a record of how you have used credit. Credit bureaus must adhere to the Fair and Accurate Credit Transactions Act (FACT Act) established by the Federal Trade Commission (FTC). This ACT gives them the right to gather information about individuals as it relates to their eligibility for credit, insurance, or employment. The information can then be provided to creditors, insurance companies, employers, or anyone who has a legitimate business oriented need for the information.
Top 5 Criteria for a FICO Score
Other factors could also be considered by institutions when you apply for a loan
There are three major credit bureaus, Equifax, TransUnion and Experian. These bureaus acquire credit data from creditors such as lenders, credit card companies and retail establishments. They also search court records for lawsuits, judgments, and bankruptcy filings.
Under the FACT Act, you are entitled to one free credit report per year. to obtain your report do one of the following:
If you find that corrections are needed to your credit report, you should contact the credit reporting company that provided the report. For more information on how to obtain and monitor your credit visit:
Just as you can't establish credit overnight, you also can't raise your score overnight, but you can do so fairly quickly. Even six months of "good behavior" will have an impact. Below are tips on how to show you have cleaned up your act.