Manage Your Credit Report

We live in a credit based society. It is nearly impossible to go through this life without credit. It can probably be done with great effort. In this day and age you need credit to rent a car, (in most cases), rent a hotel room, or to make large purchases such as a house. The credit that is extended to us is a convenience and we should do our best to manage it wisely.

If you apply for a job some financial organizations will not hire you if your credit is not in the best shape possible. Even today some insurance companies will charge you higher premiums for your automobile, if your credit in not in great shape. There are some financial organizations that will shut down your line of credit on your credit card or increase your interest rate if you default on a debt with another creditor even though you never defaulted with the initial credit card company that increases your rate.

Your credit file is constantly being monitored by the institutions you have credit with. They want to make sure your situation has not changed in such a way that you pose a risk for them. For example if you have five different credit cards and each has a credit limit of $5,000 and they all have zero balances that gives you total available credit of $25,000. Great! Now watch what can happen. If you charge $20,000 in merchandise and services on your credit card that leaves you with $5,000 of available credit, which means you have utilized 80% of your available credit. ($20,000/$25,000) = 80%. If you utilize 35% to 40% of your available credit most financial institutions will consider you a risk, not to mention 80%. At this point they can take some sort of action. Some financial institutions have increased the interest rate on the credit card you have with their organization or they refuse to extend you any further credit. This high utilization of credit can lower your credit score or fico score.

The credit bureaus issue you a credit score ranging from 350 to 900. This is called your fico score. The higher your score the less of a risk you pose for a financial institution and you are more likely to receive lower rates of interest for the financial products and services you purchase. Companies will likely send you offers in the mail for 0% interest on a credit card offer for some promotional time frame. When you apply for a mortgage loan and you score is, lets say, in the area of 600 to 625 you are more likely to receive a higher interest rate on your mortgage loan than if you have a score of say 725 to 750. The lower score can cost you thousands of dollars over the term of your loan because of the higher interest. What are some things that can lower your credit score. First and foremost is paying your debts late. This will drop your score very quickly. Also as previously mentioned high utilization of your available credit. Closing credit lines because they are paid off can also lower your credit score. If you have a new credit file without much credit this can also be a contributor to a lower credit score. If someone sues you or garnishes your wages, a judgment filed against you, or if you file a petition for bankruptcy. One other concept is having an authorized user on one of your credit card accounts that does not pay.

What is an authorized user? An authorized user is someone you have given permission to use a credit card issued by one of your credit card companies. For example you have credit card with XYZ bank and you tell the bank to send a relative a credit card. This means you have given the relative permission to use the card for purchases, but the relative is not legally responsible to make payments on that account. If there are arrangements for the relative to pay this is strictly between you and the relative; the bank will look to you for payments not the authorized user. If payments are made late they will show up on both credit files. There fore it is very important to make sure you handle your

Credit file in an excellent manner.