Here at Saving For Hope, we don’t believe that credit is a way of life. What we mean by this, is that credit is a very powerful tool, much like budgeting, savings, and planning, but it is still a tool. Credit is not a framework to build finances. Credit is not to be used as a way to accumulate stuff you typically will not buy because you don’t have the money. This is a huge mistake. This is tricky to say, because credit is needed to purchase major items like a house or a property. Most people don’t have either $150,000.00 to buy a home cash, or years to save money to purchase a home. Purchasing a house using credit is not a bad idea and it is what most people will do regardless if it is their first or second home. Cars are another topic all together and we think cars can be purchased without using credit, doing the trade up method. We will write an article about this later!
However, in this article I wanted to target the issue of “building one’s credit” more in detail. We already touched up on the subject on our saving for a house article, earlier this year, but I think some more info is needed to clarify a few items that might be still a little hazy regarding credit, credit scores, and fixing or improving our credit.
Here are a few recommendations we got from a credit repair specialist with a few added warnings. Our thanks to Bill Lavender, Credit Restoration Services at Creditdoctorbill.com. for sharing this info with us.
1- What Items Are In Your Credit Report?
- Basic info: Information that identifies you. For example: Name, address, date of birth, names of employers. Most of this data comes from information that you fill out on credit applications.
- Trade Lines: this is a fancy term for credit accounts, such as credit cards, automobile loans, department store cards, and other loans. The date you opened the account, credit limits, loan balances, payment history, current status.
- Collection Accounts. These are accounts that you have not paid on time that have either been sold to or assigned to a third-party collection agency to contact you and collect the money that they say that you owe them. (warning: keep in mind that these agencies can and will add fees to what you own, making the amounts bigger, and making it harder to pay off.)
- Public Records from the court house: Credit Reporting agencies hire third party vendors to scan court house records for negative information such as liens, judgments, and bankruptcies.
2- Items that are not NOT included in a credit report:
- Race, color, religion, nationality, sex, marital status.
- Occupation, salary, income, type of career or field of studies.
- Interest rates charged to you by credit agencies.
3- What goes into Calculation My Credit Score?
- The scores used by financial institutions to make a credit decision, and determined by something called an algorithm, developed and OWNED by Fair Isaac and Company, San Jose, California. Consumers do not have any direct access to those scores. The main components are length of time an account has been opened, the ratio of the balance to the credit limit or loan amount, recency of a delinquent account, payment history, number of open revolving accounts, and Inquiries.
4- Some helpful tips to help you improve your credit scores:
- Pay bills on time. Be careful about closing accounts as this may result in losing valuable account history.
- Pay off debt rather than moving it around. This is a common mistake people make, when they pass credit balances form one credit card to another one because it might have a lower interest rate.
- Pay off a car before trading it in, and obtaining a new loan. (Warning: we include this item here, to help people that already have a car loan improve their scores. We do not recommend people using credit to buy a car.)
- Get rid of consumer finance company loans such as Amscot, title loans, etc. these can be seen as adverse.
5- Making Secure Transaction Online
- In today’s internet connected world, be careful about using a computer that is not yours. It is easy for a third party to steal your information online. The more secure your sites, the better.
- Avoid public networks. (this also includes airports, hotels and restaurant networks that might be called “secure” but they are still open to predators.)
- Don’t use public computers.
- Use credit cards instead of debit (I will write an article on this later as well, because there seems to be a lot of confusion about using a credit card for daily local and online purchases vis-à-vis using debit.)
- Don’t share your social security number and date of birth. Keep accurate written records of online transaction with pen and paper. Print out your transactions. This gives you evidence if you need it.
- Use updated anti-virus software.
- Do not open e-mails, unless you are sure of the sender. (Warning: recent data suggest that this will continue to grow as a consumer threat in the future. Read emails carefully, even if you recognize the source.)
There you have it. If credit is used and understood well, it can be a tool for you to purchase your home or another property. Please, be careful in how to use it. Be wise and stay alert online, and most important of all, Enjoy!