Credit 101

What is a bad credit score?

Lenders use your credit reports and your credit scores to make assumptions about your credit risk. The lower your credit score, the more risky they feel it is to lend you money, and the higher interest rates they will charge if they are willing to approve your loan request at all. Having a bad credit score means that lenders will consider you to be a high credit risk.

Even more, there are a number of other entities that will use your credit history to make assumptions about you. Landlords, insurance companies, and potential employers may all consider your credit score. Bad credit could contribute to you being denied an apartment, being charged higher insurance premiums, or even not getting hired for a new job.

Because credit impacts so many aspects of our lives, bad credit is one of the most detrimental labels a person can be assigned in today's credit driven society. Unfortunately for many people, however, their bad credit label is undeserved.

What is Credit?

Credit by itself simply refers to a situation where something of value such as cash, a home, or a vehicle is given in exchange for a promise of payment. When most people think about the term credit, however, they think of a credit rating and whether they have good credit or bad credit.

In today's credit driven society, credit is necessary because people rarely have the immediate cash available to make large purchases such as a new home.

The ability receive credit is predicated on your credit rating and the more responsibly you have managed credit in the past, based on a lender's assessment of your credit history, the more credit your can qualify for and the less you will have to pay in interest rates.

Credit Repair

The above definition of credit repair is not one you will find in any finance books or other credit repair resources, but it is the best way for us to define the term for people who are looking to Credit360 for assistance with their credit.

Ask 10 people how they define credit repair and you will likely get 10 different answers. Some people feel credit repair is managing your money and making timely payments so your credit score improves over time. Others feel it is the process of disputing questionable credit listings with the credit bureaus. Others still, equate credit repair to illegal tactics such as file segregation. Finally, based on our experiences talking to consumers with credit problems, some people feel that a credit repair service is the same as credit counseling, debt consolidation, or debt settlement services.

Because there are so many definitions of credit repair, and no perfect definition that satisfies everyone, it would be a disservice to our clients to say we offer credit repair services without saying exactly what that means. By providing our own definition of credit repair based on the services Credit360 provides, we are being careful not to mislead anyone.

Establish Good Credit and Fix Bad Credit

Odds are there are negative items listed on your credit reports that do not belong there. By law, you have the right to dispute these negative items. Any negative listing you feel may be inaccurate, untimely, misleading, incomplete, ambiguous, unverifiable, biased or unclear ("questionable") can be disputed with the credit bureaus.

If the item cannot be verified, then it must be removed from your credit report.

By taking a two pronged approach to improving your credit through ongoing management of your credit and through fixing the errors in your credit reports, many people have seen dramatic results in a relatively short period of time. If you simply sit back and wait for your credit score to improve, it may be a number of years before you see a significant shift, but by proactively working to fix your credit, you may see noticeable improvement in your credit score in only a matter of months.

When your credit is broken to begin with because of an imperfect credit system, you shouldn't have to wait for years for the problem to fix itself. Take advantage of your right to a fair and accurate credit score by working to fix your credit reports.

What is a credit bureau?

Decades ago, banks and other lenders had to base lending decisions on personal interviews with prospective borrowers or on their past history with the borrower. This made for a difficult, inefficient, and unreliable method of estimating credit risk.

In an effort to gather more information about consumers that could be used to calculate credit risk, banks began working with other creditors to create consumer credit reports that contained information about a person's credit use from multiple sources. Over time, this task of managing credit reports was outsourced to third party credit bureaus that would then provide consumer credit reports to the banks in exchange for a fee.

Today, what was a large number of credit bureaus spread across the country has, through the process of mergers and acquisitions, been reduced to the three primary credit bureaus: Equifax and TransUnion.

What is a credit score?

A statistical summary of the information contained in a consumer's credit report usually graded on a scale ranging from 300 to 850.

The definition is simple, but the implications of your credit score are far more complex than a three-digit number. Your credit score represents your financial reputation—used by lenders, landlords, employers and others—to determine your level of risk, responsibility, and overall character.

Negative items affecting your credit score come in many forms, including:

  • Overdue bill payments
  • Maxed out credit cards
  • Charge offs and collection accounts
  • Foreclosures
  • Identity theft
  • Excessive third-party inquiries, etc.
  • Each item is equipped with its own level of severity and the power to damage your credit score. Combined, their strength can cripple it.

If you suffer from bad credit, there is good news. Federal law requires that credit companies must follow explicit rules before being able to report personal information about you to credit bureaus or anyone else. When they don't, or when they report items in error, you have the right to review, investigate, challenge, and even dispute such questionably negative credit report items. Not only can you move through the process alone, you have the ability to seek advice from qualified professionals. For years, Credit360 has helped clients work towards fair and accurate credit scores by helping them enforce their consumer protection rights. Credit reporting is a complex process, but asking the right questions about your credit report doesn't have to be. Take a proactive stance against bad credit by reviewing your credit score or seeking help; your efforts could make all the difference.

Bad credit won't impress lenders or landlords. In fact, they will likely view your unstable financial past as a good indication of future behavior. As a business risk, lenders will charge you higher interest rates, or simply deny you credit all together. Employers may pass you over in favor of an apparently more responsible applicant. Insurance companies may even charge higher premiums to compensate for your perceived high-risk lifestyle.

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