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Two Essential Things you must Understand in the Credit System

By George Hauser
Published: Wednesday, November 25th, 2009

The credit system could be considered one of the greatest inventions of man. Imagine claiming things and services without having to take out cash from your pocket upon purchase. It’s practically getting an extension on payment. However, creditors will not let you have the loan or the house and insurance you want without a price. 

If you are not careful in handling your credit, you can be in a lot of financial trouble. You can be stuck in debts. That’s why it’s most important to learn about the credit system before you begin applying for a loan or a credit card. There are two things you generally have to understand: credit reports and credit scores

Credit report

All of your credit activity which includes your credit payments, how long you have kept your accounts open, how many delinquencies you have and others are recorded in a document called the credit report. 

Other than that, the report also contains information about you. This includes where you live/d, your marital status, current and previous employer/s and other public records related to your financial status. The credit report is created when credit bureaus and credit reporting agencies gather the mentioned facts from you and the people you have financial relationships with like creditors, insurance agencies, banks, etc. 

There are generally three credit reporting bureaus in the state. The law requires each of them to provide you with a copy of this document for free once a year. That is if you request for one. 

Credit reports are important because they contain the information creditors, insurance companies, employers, etc. need to know about how well you handle your dues. Without a credit report, they could be taking a risk approving the credit application of consumers because there is no proof that he is financially capable of paying back the money he borrows. 

Credit score

Other than studying the contents of your credit report, some establishments look at your credit score. The credit score is a numerical summary of several items on your credit report. It’s important to keep your credit score high and there are many credit score tips you can apply to do that. 

One of the most important credit score tips you should remember is to regularly check your credit report. As mentioned, your credit score is only a numerical representation of what’s on your report. This means that if you want to improve your score, you should know which among the items on your report is pulling your score down. From there, you can act to increase your score. 

Another of the credit score tips warns you about the use of credit card. It’s very easy to charge everything you might not even need. Revolving credit is more difficult to maintain and repair on the credit report than installment credit because your debt can grow with just a few delinquencies. Other than that, there are several credit score tips that teach you about what to consider before applying for any form of credit. 

There are also specific credit score tips that you can apply to prevent your credit score from dropping while your credit report is under repair. Again, you can only know if your report needs repairs, or if you need to file disputes if you review your credit report on a regular basis.

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