A Few Things You Need to Know About Your Credit

Very few people can manage to stay debt-free these days. It is not easy to pay cash for new cars, homes or education. Small or large businesses also depend heavily on credit. There are many people overwhelmed by debt, because very few know how to use credit properly. Nevertheless, if used carefully, credit can be a useful tool to build a fortune.

Statistics show American people have more than 1 billion credit cards with more than $900 billion in outstanding balances. Federal Reserve statistics show average credit card debt grew three times since 1990. 20 years ago one household had $3,000 debt, while these days average debt is $9,600. And this is only credit card debt: there are also mortgages, loans and other debts.

Lot of people doesn’t have full understanding on how credit system works, or how their lives are affected by their credit history. A bad credit history these days not only influences the interest rate when you apply for a loan, but it can also affect your personal life, the chances to get a job, apply for housing and insurance.

Your credit report is the first thing a lender consults when you apply for a loan. Based on this credit report, the lender can assess what is your credit risk, in other words: what are the chances you will repay the loan? The credit report also affects the interest rate you will get.

If you haven’t run up your credit card balance, then your credit risk is low. But if you were late a few times with your payments, or never had any credit, then your lender will be more suspicious, and if they give you the loan, they will charge you more interest.

In the United States there are three credit reporting agencies: Equifax, Experian, and TransUnion. Lenders use one of these credit bureaus, so before you are applying for a loan, it is a good idea to check your reports, to be sure they are accurate. Fair and Accurate Credit Transactions (FACT) Act allows people to have one free credit report a year from each credit bureaus.

Your payment history and accounts stay on your report for seven years, but if you had bankruptcy, you can expect that to stay on the report for ten years. There may be errors in your report: in this case, you can ask in writing for it to be corrected. There is also the possibility to explain certain special circumstances. For example, if you filed for bankruptcy because a huge medical bill, you can write a few lines about that.