Credit Check:
Understanding How Credit Works Makes Gaining It An Easier Task By DOMENICK RAFTER Many Americans are afraid of it. Some try to avoid it. But if you plan on making a big purchase and are going to need any type of loan, like
for a house or a car, you need it. Credit is one of the most popular ways for people to purchase items, especially big items like homes and cars, but it can also be financially dangerous.
What Is Credit? Credit is a trust in which one individual or body provides resources to another in exchange for the promise of payment instead of immediate payment. The receiving party arranges a deal with the provider to reimburse them, whether it is at a later date, or in stages, in the form of a monetary payment or other goods. An example of credit could be as simple as using your credit card to buy a pair of jeans from a store, then paying for the jeans later when you pay the credit card bill, but it is often far more complicated. How Do You Get It? Lenders and banks giving an individual or a company credit want to make sure that they are going to get payment back and not be left at a loss, so they are unlikely to give a line of credit to anyone who cannot prove they have been responsible in paying it off. Not having any credit history is almost as bad as having a terrible credit history when you are applying for your first credit card or loan, so it is important to establish credit early – either by getting a low-balance credit card or a student loan. Students can have their parents co-sign and often do to establish initial credit. Often it is during college years that a person establishes their initial credit with low-interest rate, low-limit credit cards or student loans. If you’re older, lenders will use bank accounts, employment history, residence history and utility payments – such as gas and water bills – to determine your credit worthiness.
What Is A Credit Score? Worthiness is determined through the credit score, which is the sum of the entire report. The score determines on a scale how good your credit history has been. In the United States, the most popular score is the Fair Isaac Corporation (FICO) score, which ranges from 300-850 with 300 being terrible credit – you’re unlikely to get any type of loan – and 850 being the best, where lenders are going to fight for you. The median score according to FICO is 723. You can sign up to receive your FICO score at myfico.com, and for a fee, you can be updated about any changes to your score and get up to (continued on page 31)
www.queenstribune.com • Sept. 29 - Oct. 5, 2011 Tribune Page 17
What Is A Credit Report? A credit report, or a credit history, is the complete history of one’s borrowing and payments including documentation of late payments and bankruptcies. Often, the terms consumer report or credit history are used interchangeably with credit report. Credit reports are used by credit card companies and lenders to determine whether or not an individual or a company can be given a loan or line of credit without risking default. If a person or business is good at paying back bills on time and in full, then lenders will be willing to take the risk and lend them money. If they have paid their bills late, or repeatedly paid the minimum payment or perhaps have even declared bankruptcy, lenders will determine that they are likely to default on their payments and are unlikely to offer them loans.