The days of easy credit are long gone. But, the days of bad credit report information are still here. Bad credit info, when credit is tightening, is a recipe for financial disaster.
Why Will Credit Be Hard To Get?
The government may not want to admit this, but the economy is going through another Great Depression. That means credit becomes a lot harder to get, the costs get a lot higher, and the terms become a lot tougher.
Banks do not want you to know credit is a zero sum game.
If you get credit, someone else does not. This is because credit comes from the economy. A big economy means lots of credit. A shrinking economy (like now) means less credit... for everyone. Don't be fooled! Your credit card may seem like nothing has changed, but credit will be harder to get as the economy continues to shrink! Who will be left out? Will it be YOU!
To decide who gets the priority for credit, banks use the credit score, credit report, and credit history. Each can change at any moment!
Just because you have credit today, does not mean you will have it when you really need it. You must protect yourself!
What Can I Do?
The credit and debit card, mortgage and finance companies have tremendous power over you when you use their credit. They have the courts and the law on their side with their legal departments and access to politicians. However, that doesn't mean you are powerless to protect yourself. But, you must understand it is not free.
Just as the banks pay to protect themselves, you will have to do the same.
Be informed. Learn how the banks and credit card companies work. Learn the tricks and inside information to give yourself a better chance over everyone else. For instance, you could try the 37 Days to Clean Credit e-book.
A more direct approach to make sure you have access to credit is to use theft protection and credit monitoring. It is best to take advantage of these services now to find out what works best. When credit really becomes tight, you will not have the luxury of time to learn how to use these services to your advantage.
A little preparation today may mean the difference between poverty and prosperity tomorrow!
I've Got Protection and Monitoring... Now What?
Make sure you use credit as best you can. Do not waste it on temporary enjoyments or brief indulgences.
Never forget that using credit puts you in DEBT!
When you use it, ask yourself, "Does it make sense to take out a loan for what I am about to purchase?" For instance, if you want to go to a party, does it make sense to take out a loan to pay for gas, or buy new clothes? The debt may be around long after the party!
Too many use credit to extend a party that has long since ended. They go into debt for luxury items, for trips, for fun and enjoyment. While it is fine when credit is easy to get, it is disastrous when credit becomes scarce.
Do you want to regret taking out that loan for a vacation when you can't get a loan to keep the lights on in your home?
Use your credit today on value. Get things with practical, long-lasting value. Don't be tempted with fads and fashions. That is how you overuse credit. Banks want you to overuse credit the way fast food companies want you to overeat! Don't fall into their trap!
What is a credit score?
A credit score is a numerical index. It represents an estimate, of an individual's financial creditworthiness. It comes from a subset of the information, in an individual's credit report. Lenders, such as banks and credit card companies, use credit scores to determine credit limits and interest rates for loans. What considered good credit score?
Predominant credit score.
The best-known credit score, in the United States, is the FICO score. It is calculated using a mathematical formula, developed by the Fair Isaac Corporation.
The three major, American, credit report agencies (Equifax, Experian and Trans Union) all use variations of this scoring formula. Each uses it under a different name. The best-known are the Beacon score and the Emperica score.
A credit score between 650 - 699.
FICO scores.
FICO scores, and its variants, are designed to measure the risk of default. They use various weighted factors:
35% punctuality of payment in the past,
30% capacity used,
This is the ratio of current revolving debt, (e.g. credit card balances) to total available revolving credit (e.g. credit limits).
15% length of credit history,
10% type of credit used (installment, revolving) ,
10% number of credit accounts applied for in the recent past.
The above percentages are approximate. Current income, and employment history, do not influence the FICO score.
Credit score standards.
Each of the major credit reporting agencies has its own method, for calculating credit scores. However, the scoring models are fairly well standardized. A "600" score at one credit reporting agency is roughly equivalent to another.
