Many renters and prospective home buyers understand very little about credit. Even fewer know how to build it nor do they understand the criteria for “good” credit and how credit is calculated.
Credit is really a trust system that allows a consumer to obtain goods prior to making payment. It is a promise to pay… eventually. Consumers with low credit scores will not have the same options as those with elevated scores. For example, most leases require a credit score of at least 600. Scores between 580-699 are considered fair and 300-579 is deemed poor. A poor credit score earns you a higher interest rate on loans and mortgages, higher security deposits, and a co-signer will likely be necessary if you want to buy a car. Scores of 740-799 are very good and 800-850 is exceptional.
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Many factors play into calculating your credit score: the number of accounts you own and the length of time they have been active, outstanding debts, credit you’ve been extended, the number and types of credit owned, late or missed payments, and sometimes even your income. Nothing kills credit faster than late payment, opening and closing accounts in a short period of time, and skipping payments altogether.
Unfortunately, many consumers are suffering the consequences of poor credit scores. The good news is that there are ways to repair your credit. While it takes time and effort and you will likely need to cut back in some areas, it is not impossible! Learning how to negotiate with credit card companies rather than to fear threatening collection phone calls (mostly bluffs, by the way) is a good start. Don’t agree to payments you cannot afford and already know that you will never be able to make. Negotiate that which is affordable. In the end, collectors just want your money and will take whatever they can get. In addition, they earn a percentage of what they are able to collect from you, hence the scare tactics. NEVER pay a collector with a personal check! If they do not agree to accept money order, contact an attorney. At the very least, come up with a plan to pay down your debt on a consistent, monthly basis. Bad credit can stick with you for decades and severely impair future opportunities such as home ownership.
It is important to understand credit and make wise decisions before choosing credit cards, bank accounts, and making purchases requiring you to secure a loan. If possible, consider consulting a financial adviser, bank manager, or loan officer in order to better understand your position financially. Construct a plan for keeping your debt load at a bare minimum so as not to hinder future opportunities.
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