Credit means money loaned to the consumer either by secured or unsecured method. Secured lending is the mortgage on your personal residence or your car while unsecured lending is the consumer’s credit cards. The lender’s who issue credit cards establish an initial credit limit to the consumer. Use your credit cards responsibly.
A good credit rating is important because it affects every major financial decision the consumer makes. The better your credit rating normally, the lower your interest rate on your mortgage or car loans because you are better credit risk than someone with a lower credit score. In other words, if you have a positive credit history, meaning you repay your loans on time then you have a good credit. If you have a bad credit history, which means you are late on payments you have bad credit.
The three major credit bureaus are: Equifax, Experian and TransUnion. These companies use a scoring system that rates your credit by giving it a numerical number. This numerical number is considered your score and can range from 300 to 850 depending upon the credit bureau. On average, the majority of consumers should have a score in the mid 700 range to be considered a good borrower. Anyone with a lower then 650 is considered to be a poor risk by lenders.
Having indicted that lower than 650 is a poor risk. Credit card companies continue to issue cards to these borrowers but the rate is much higher than a consumer with a higher credit score. So how does a consumer improve their score?
Here are a few ways to improve your score:
• Make a list of all bills and their due date
• Make a family budget
• Enroll in an automatic or direct payment program – in same cases, you can get a lower rate by using these programs
• Monitor your credit report quarterly for errors
• Consider credit counseling to get tips on how to improve your spending habits
• If divorced, close all joint accounts after divorce. Start to rebuild credit in your own name
• Take responsible for your spending habits
