Building a good credit record is one step in reaching financial independence and responsibility. An achievement that has great rewards and comes with great responsibility. Learning to manage credit responsibly is something that can be passed on through the generational lines.
Purpose for Obtaining Credit
The main purpose for credit is to allow the consumer to make purchases for items in advance while making incremental payments on their balance and paying interest to the lender for allowing them to borrow. Many companies, as well as lenders, use credit history as a base line for what are considered “The 3 C’s:”
Character: In terms of how a person has handled past debt obligations: From the credit history and personal background, honesty and reliability of the borrower to pay credit debts is determined.
Capacity: This refers to how much debt a borrower can comfortably handle at any given time. Income streams are analyzed and any legal obligations are considered, which could interfere in repayment.
Capital: This refers to current available assets of the borrower, such as real estate, savings or investments that could be used to repay debt if income should be unavailable. CAMEL is a tool sometimes used for assessing credit-worthiness of a borrower. CAMEL refers to:
Although, this approach can seem unfair due to circumstances that may happen which affect the consumer financially, it is the closest approximation that gives equality in borrowing. This is why becoming financially stable and planning finances for now and the future is a must. This approach will give the freedom and flexibility to fund things as well as receive other smaller forms of credit or large purchases such as a home or car.
Repairing Consumer Credit
Generally, this topic is a mystery to many, but it is actually pretty simple. Every consumer has the right and the capability to fix their credit items. Let’s look at some simple steps in doing this:
– Obtain and review credit report.
– Analyze report.
– Make a list of all the items that are considered to be questionable or negative. Clearly identify each item in report to be disputed, explain why the items are being it disputed.
– Write a dispute letter to the credit bureaus.
– Send the letter to the credit bureaus. Make sure it’s sent registered or certified mail.
– Document efforts. Record when letters are sent, and the results.
– Wait for the bureaus to investigate claims (30 days).
– Analyze the results.
– Resubmit if necessary
Obtain and Review Credit Report
Obtaining a credit report can easily be done by either visiting Annual Credit Report online for a free report or request via phone or mail;
Call 877-322-8228 or by complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
When you order, you need to provide your name, address, Social Security number and date of birth. To verify your identity, you may need to provide some information that only you would know, such as the amount of your monthly mortgage payment.
Analyze Credit Report
Look over report and notice what types of items that are listed and verify they are valid accounts. Make a list of all items considered to be questionable or negative.
Use an extra sheet of paper and take note of duplicate items with same account numbers, negative reporting that is inaccurate, accounts that have been satisfied but not reported as so, and any other questionable items located.
Write a Dispute Letter to the Credit Bureaus
What should be challenged? Anything that is invalid or falsely reported. Don’t bother challenging the information within a collection listing, charge-off, court record, repossession, foreclosure, or settled account. As the basic nature of these listings is negative, changing the information within the listing will yield no improvement. Severely negative listings, such as these, must be disputed on the basis of complete deletion or not be disputed at all.
These letters are basic in nature and are sent to all three credit bureaus at Equifax Information Services, Experian Consumer Assistance, and TransUnion.
New Positive Consumer Credit
Make sure when sending reports electronically an email copy is saved so it can tracked. Once a response is received evaluate what items came off, which stayed and whether or not it is necessary to repeat this process.
When attempting to establish new positive consumer credit, make sure all negative items get paid or paid down. Consumer credit is important to understand and to pass on down the generational lines.