How much do you know about personal credit? It can be a little confusing right? Sometimes I feel like I have no control over it. However with the right knowledge I have been able to raise my score over 100 points. In this post I will break it all down for you in the simplest way I can.
Know and understand the parties involved
- You (the borrower)
- Your lenders (creditors-people you borrow from)
- The collection agencies (the people who chase you when you don’t pay)
- The credit reporting agencies (the people who maintain your records)
You are going to want or need to borrow some money at some point. When you borrow money you sign an agreement or contract. If you don’t repay the money as promised under the terms and conditions of the contract the lender has a right to sue you in court.
Lenders want to loan you money if they think you’ll repay it. They lend money, collect interest, and make a profit. They want to loan you the money at the highest interest rate possible.
Collection Agencies have one goal- to bring home the money that the lender couldn’t get back. So they get hired to go get the money from you and do whatever they can to get it.
The credit reporting agencies work for the lenders. And there main goal is to keep the lender client happy. How do they do this? Report lower credit scores. This allows lenders to raise interest rates and in turn keep paying for future “inquiries”
Who are the three Credit reporting agencies? first its important to know these agencies do not work together, they are actually competetors, lets find out who they are
Equifax: Founded in 1899 in Atlanta as the Retail Credit Corporation, it is the oldest major consumer credit company in the world.
Experian: founded in 1980 and headquartered in Dublin, Ireland. Originally named “CCN Systems” The aquisition of TRW Information Services provided much of its credit reporting structure.
TransUnion: founded inn 1968 in Çhicago. The company grew rapidly byaquiring city based agencies. Today they are the third largest credit firm in the world.
US congress passed three major laws that are extremely important and directly influence how the lenders, debt collectors and credit reporting agencies behave. All of them for the consumers benefit
THE FAIR CREDIT BILLING ACT (FCBA) This is aimed at the lenders. Its purpose is to make sure that lenders bill their customers fairly, accurately and completely. It spells out consumer right , including the right todispute bills.
THE FAIR DEBT COLLECTION. PRACTICES ACT (FDCPA) This Law regulates the collection agencies. It dictates exactly what debt collectors can and cant do, and it prohibits many of the abuses that used tobe common before the law came into effect. Because of this law Collection agencies are now held to certain standards, if thety dont they are subject to fines and penalties..
THE FAIR CREDIT REPORTING ACT (FCRA) This law zeroes in on the credit reporting agencies. It tells them what they can and cant do, and ensures that consumers can get access to their credit reports and scores. It regulates who is allowed to acquire a consumers report and for what reasons, and it places limits on hoe long information can remain on a credit report.
Lets talk about you (the consumer) you are probably going to borrow money in your lifetime. Your goal is to be able to borrow money when. you need it.
Your incentive is always to make sure , that your credit report casts you in. the best possible light, anmd that your credit score is high as possible. That way you’ll always be able to borrow on the best possible terms, and lowest rates.
Without the government, the deck is pretty much stacked against you. you are only one person. Your up against powerful banks, finance companies, huge billion dollar credit tycoons. You want your credit score to be high, they want it low. They are rich and your not. It doesnt seem fair, at first….
Fortunately, congress has passed some federal laws that put some powerful weapons in your hands- when used correctly they can level the playing feild.
Its absolutely essential to learn how to read your report and understand whats in it if you want to use the weapons discussed earlier.
even though there is three variations of your credit report. They all essentialy contain the same info.
What is your credit score? where did it come from?
Two gentlemen Bill Fair and Earl Isaac (one and engineer and one a mathematician) got together and formed Fair, Isaac and company (FICO)
They soon came up with a scoring system for assessing the creditworthiness of loan applicants.
Eventually they developed a sophisticated software designed to simplify the complex credit report. Its supposed to be simple: they feed all the information about consumers into the software. The program converts to a three digit number a “credit score” The system is not so simple and exactly how it is calculated is a secret.
So what’s the difference between a credit score and credit report?
A credit report is a detailed, complex summary and analysis of your spending habits, debt, and credit history.
A credit score (FICO Score) is a three digit number from 300 to 850 ( higher the better) that’s based on information in your credit report and represents your “credit-worthiness” as a borrower.
I hope you were able to at least get an overall view of personal credit and hopefully you can understand the importance of credit score.
If you want to increase your credit score the same way I did then go to the following link below