The Elusive Good Credit Score
Good credit is actually very hard to obtain. Not only does the process have to start with actually borrowing some money in the first place and pay it back, the behavior needs to continue. Ironically, those with the best credit regularly use their financing tools on a monthly basis. Unfortunately, once used, most people stumble because they put off paying back the debt immediately. Just carrying a balance for one month creates a significant risk that the same will happen again the next month and the next month after that. The person’s credit then gradually drops as the credit card debt gets bigger over time.
The American lifestyle is far more comfortable with borrowing to meet immediate gratification than with living frugally and paying for things in full when funds are available. In fact, much in life forces people to borrow. The cost of homes, education, and cars are astronomical. Few people can pay for these assets outright, and it takes decades to save up the necessary amount of funds to do so. As a result, people are caught in a catch-22: they must borrow to achieve the things in life that will improve their way of life and their income. You start to see the picture. Debt becomes inescapable. You can find out more information at http://www.irebuildcredit.com
Couple the fact of major assets requiring financing in life with the convenience race of people wanting to have the latest gizmo, clothes, or trendy consumer product, and credit cards start rising as well. It’s not surprising that many people spend more than 50 percent of earned income per month on paying off debt. With all the bills they have within five years of starting financing, most of what people work for is to pay off what was bought years before.
The Credit Report and Credit Score
The concept of the credit report is twofold. First, it uses a mathematical score, known as a FICO score, to provide a quick measure of borrower’s performance. Anything lower than 650 is a problem. The highest score to obtain is 800. Scores can go up and down based on new loans, new credit approval, inquiries for applications, missed payments, collections, and the worst, bankruptcy filings.
Second, credit reports provide the performance detail on each known financing account a borrower has or has had in the past. The report will show the detail of the last three years of the account. Marks will be tracked by month, indicating timely payment or delays. Each delay or missed payment gets flagged. Reports also show what accounts existed in the past and were completely closed and paid off.
Good credit only happens when all the information in the credit report supports a higher score. A credit report can be quickly thrown off by one bad instance or incorrect information. However, few people truly understand this fact prior to getting into trouble. As long as a borrower has a high amount of revolving debt his ability to make timely payments is at risk. Each time a payment is late, it triggers a negative mark on a related credit report. The marks get worse if the payment fall behind by an entire payment cycle. Multiple marks begin to show a pattern and, ironically, people also try to seek more credit when they are in trouble. This too adds to the decline of an affected credit report.
Mistakes and Big Mistakes
Incorrect data can be just as damaging. The credit reporting agencies, the companies that produce the credit report records, gather data daily from lenders and credit companies. Frequently, the information is reported wrong or attributed to the wrong name. The credit reporting agencies themselves don’t make great effort to fix these problems automatically. As a result, borrowers have to watch their reports and spot problems as soon as they are posted. Unfortunately, many people don’t. The result ends up being a bad mark sitting on a credit report that triggers a related reduction in the person’s credit score. It’s not unheard of for a person with stellar payment practices to get hit with a bad mark for late payments or in some extreme cases get flagged for non-payment.
To make problems works, just about anyone handling a debt can report the information to a credit reporting agency. In some extreme cases, some unscrupulous companies have sent in data to torpedo a debtor’s record due to inadequate cooperation.
As a result the only true way to have a good credit score is to 1) reduce all debt to amounts that are paid off every month, 2) eliminate all revolving debt accounts to one and keep only long-term fixed debt if necessary, and 3) monitor a credit record actively. The last option can be effectively done by freezing a credit record. However, even this takes some monitoring because a freeze needs to be renewed every six months. Yet if applied, no one can open up a new account or add information in the meantime except for existing accounts.
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