Credit Sesame on how you can crack the credit code for a more sustainable financial future.
Credit impacts consumers’ ability to buy homes or cars and secure loans for education or starting a business. It is integrated into all aspects of modern financial planning. Understanding all aspects of credit and the intricacies of credit management is beneficial for consumers who want to crack the credit code and make informed financial decisions.
What is Credit?
Credit is a multifacted concept all relating to the financial mechanism allowing individuals to borrow money. It encompasses funds available that you have not yet earned and enables economic activities that could not otherwise happen.
The credit available to you is the total of any loan amounts and credit card limits. For example, “I have $1,000 credit available on my credit card.” Credit comes in various forms including credit cards, loans, mortgages, and lines of credit. Details of credit available to you can be found on your loan documents and credit card statements.
Credit status or standing is a description of your past relationship with credit. For example, “My credit is good” indicates a positive track record of repaying debts on time and managing credit responsibly. Bad credit suggests a history of late payments, defaults or excessive debt. Credit status can have a significant impact on your ability to secure future credit and the terms offered. Information about your past behaviour with credit can be found on credit reports issued by the three major credit bureaus, TransUnion, Experian and Equifax.
Your credit score is a numerical representation of your creditworthiness calculated from information in your credit reports. For example, “I have a credit score of 680.” In the United States, credit scores (there is more than one credit score) typically range from 300 to 850. Lenders and creditors use credit scores to assess the risk associated with lending money to you. A higher credit score indicates better creditworthiness making it easier to access credit at favorable terms. Credit scores are available for free from many banking and financial instutitions.
Credit scoring models
There are several different credit scoring models. VantageScore and FICO scores are two widely recognised credit scores. Each scoring model weighs factors slightly differently, so score varies depending on which model is used. However, the key factors that influence credit scores remain largely consistent across models.
Factors Influencing Credit Scores
Several factors influence a person’s credit score. These include:
- Payment history. This is the most significant credit factor, accounting for about 35% of your credit score. Payment reflects whether you pay your bills on time and if you make late payments or defaults.
- Credit utilization. This is the percentage of available credit that you use and accounts for around 30% of your credit score. For example, if you use $250 on a credit card with a $1,000 limit, that’s 25% credit utilization. High credit utilization can negatively impact your score. Ideally, keep utilization below 30% of your total credit limit.
- Length of Credit History. The length of time you have had credit accounts for about 15% of your score. Longer credit histories are viewed more favorably as it shows you have a history of managing credit.
- Credit mix. Credit cards, installment loans, and mortgages are different types of credit. Credit mix accounts for about 10% of your score and a good mix can positively impact your credit score.
- New credit inquiries. New credit applications account for 10% of your credit score. Every time you apply for new credit, a hard inquiry is made on your credit report. Too many inquiries in a short period can lower your score.
- Public records. Bankruptcies, liens, and judgments can have a significant negative impact on your credit score.
Tips for building and maintaining good credit
Building and maintaining a healthy credit profile and credit score requires responsible financial management. Much of it is common sense.
- Pay bills on time. Timely payments are the foundation of a good credit score. Set up reminders or automatic payments to ensure you never miss a due date.
- Monitor your credit report. Regularly review your credit reports from the three major credit bureaus to check for errors or discrepancies.
- Reduce credit card balances. High credit card balances relative to your credit limits can harm your score. Pay down your balances to reduce your credit utilization ratio.
- Keep old credit accounts open. Closing old credit accounts shortens your credit history. This can lower your credit score. It is generally a good idea to keep these accounts open, even if you do not use them often or even at all.
- Limit new credit inquiries. Be selective about applying for new credit. Multiple inquiries in a short time can be seen as a red flag. Consider applying for new credit only if you are pre-qualified or pre-approved. While this does not guarantee a successgul application, it makes it more likely.
- Diversify your credit. If you have only credit cards, consider adding to your credit mix with an installment loan.
- Debt consolidation. If you have multiple high-interest debts, think about consolidating into a lower-interest loan to make repayment more manageable.
- Seek professional help. If you are struggling with credit issues or have significant debt, consider consulting a credit counselor or financial advisor for guidance.
Credit Protection Laws
As a consumer, you are protected by laws and regulations around credit reporting and lending practices. The Fair Credit Reporting Act (FCRA) ensures the accuracy and fairness of credit reporting. Under this law, consumers have the right to dispute inaccurate information on their credit reports.
The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against applicants based on factors such as race, color, religion, national origin, sex, marital status, age, or the receipt of public assistance.
Understanding these laws empowers can empwer you to assert your rights and hold creditors and credit reporting agencies accountable for any violations.
Crack the credit code with Sesame Grade™ and Sesame Ring™
Credit plays a significant role in our lives and influences access to credit cards and loans, the terms of those loans, and even the ability to rent an apartment or secure a job. It is one thing to understand this, but how to manage it? Credit monitoring services can be valuable and provide consumers with regular updates on their credit scores and reports.
You can see your credit picture at a glance with Sesame Ring™. The unique user interface enables easy and intuitive review of TransUnion data. Credit report information from all three bureaus is available if you choose to upgrade to Premium. In addition to data and information, the app provides a measure of overall credit health with your Sesame Grade™, and provides alerts, personalized action plans and AI-driven customer support. As you embark on your journey of credit and financial health improvement, knowledge is your most potent asset. Insights from all three bureaus can help you make sound financial choices, negotiate from a position of strength, and nurture your credit health. Regular reviews enable you to maintain accuracy, detect discrepancies and shape your financial future with confidence. Remember that credit is a tool that, when used wisely, can open doors to financial opportunities.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.