How Credit Works Credit is undeniably important and can influence everything from your ability to secure a loan to your ability to acquire a job. In basic terms, your credit history illustrates how well you have paid your bills and handled credit extended to you in the past, as well as how well you are handling credit today. Credit bureaus or credit reference agencies collect information about you and your paying habits from banks, credit card companies, lending institutions, and retailers with which you have had financial dealings. Credit bureaus compile information about your credit history into something called a credit report. This credit report contains information about your payment history for such things as credit card accounts, home rentals, utilities, automobile loans, and student loans. When you apply for a loan or credit, the lender, from which you've requested the funds, purchases a credit report from one or more of the available credit reference agencies. The lender then reviews and analyzes the information on your credit report to decide whether or not to offer you a loan. Typically, individuals with better credit histories are offered better loan terms and rates. However, having bad or slow credit does not resign you to being unable to secure a loan at a good rate. You'll just have to work a little harder to get the best deal. It is wise to periodically check your credit report to make certain the entries listed are correct. Sometimes mistakes are made that could cause you to be denied credit. If you find errors on your report, contact the credit agency in question for details on how to correct the mistakes. Ways To Repair Bad Credit Bad credit can cause numerous problems, such as making it difficult to obtain loans and credit cards, get certain jobs, and even rent a place to live. Those with bad credit often feel hopeless and quite sure their negative credit histories will follow them around forever. However, there are ways to repair bad credit and make obtaining credit easier. Start by obtaining a copy of your credit report. Review your credit report and begin repaying old debts. While paying old debts will not repair the damage to your credit file, it will prevent additional negative reports from being filed. Furthermore, these debts will be reported as paid, helping to ensure that your credit history does not continue to get worse. After you've repaid some of your old debts, you want to make sure new, positive reports are filed. To make this happen, consider opening a new bank account or applying for a credit card designed for those with bad credit. If you obtain a new credit card, be sure to keep the balance low and pay on time. You don't want to create any new negative reports. You might even want to consider refinancing, with a home equity loan, to pay off several accounts simultaneously. Eventually, negative credit reports do simply go away. Unfortunately, it takes five to seven years for negative reports to expire and cease dragging down your credit score. This means that in addition to repaying old debts and opening new accounts, you must have the patience to wait for negative items to drop off. You can, however, take comfort in the fact that the steps you take to improve your credit report will cause your score to rise, as you wait for older items to be removed. |
