Understanding Your Credit Report
Your credit report can contain personal information, credit account history, credit inquiries, bankruptcy, public records, and collections. This information is reported by your lenders and creditors to the credit bureaus. Much of it is used to calculate your FICO® Scores to inform future lenders about your creditworthiness. Although each of the credit bureaus Experian, Equifax and TransUnion all may report your information differently. All credit reports can contain basically the same categories of information. These categories are: identifying information, credit accounts, credit inquiries, bankruptcy public records, and collections.
How To Build Credit
When you first make the decision to start building credit from nothing, it can seem very difficult to get a credit card or loan without having any credit history. There are several options that could help you begin your credit-building journey. You can build your credit with a secured credit card which is a type of credit card that requires you to put down a security deposit to open an account. Typically, this amount then becomes your credit limit, protecting the card issuer if you're unable to make your payments. A secured personal loan is a loan for building credit, also known as a credit-builder loan, is a type of loan where the lender places your loan amount into a certificate of deposit (CD) or a savings account that you can't access. You then make regular payments on the loan, and once you've paid it off, the money in the CD or savings account is released to you.
Good and Bad Debt
There is a clear difference between good debt and bad debt. The right kind of debt, often called "good debt," can be a powerful tool for building wealth and achieving financial goals. Unlike "bad debt," which finances things that lose value, good debt is an investment that has the potential to increase your net worth or future income. It provides leverage, allowing you to control or acquire assets you otherwise couldn't afford.
Monitoring Your Credit Scores
It is always a good idea to stay on top of your credit scores and monitor them monthly. Checking your credit report regularly might show you what steps you can take to improve your credit health. When you check your own credit report, it is considered a soft credit pull, and does not impact your credit score or credit history.
How Hard Inquiries Affect Your Score
The impact from applying for credit will vary from person to person based on their unique credit histories. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.
Federal Regulated Laws
Understanding the five major laws are your key weapons against unfair creditors and collectors. These are federal regulated laws put in place to protect consumers credit files.
- The Fair Credit Reporting Act is designed to help ensure that credit bureaus furnish correct and complete information to businesses to use when evaluating your application.
- The Equal Credit Opportunity Act (ECOA) prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance.
- The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements.
- The Fair Debt Collection Practices Act (FDCPA) applies to personal, family, and household debts. This includes money owed for the purchase of a car, for medical care, or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices while collecting these debts.
- The Truth In Lending act law requires all lenders to accurately inform borrowers about elements of the loan they want to take out, including its length, the annual percentage rate (APR), and the total amount the borrower will pay, including interest. The TILA is responsible for making lenders give you honest, accurate, and comprehensive information about any loans you request and preventing them from giving you harmful financial recommendations.