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Advocates for Young AdultsTM
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Advocates for Young Adults
| Introduction: Credit is a privilege, not a right. Lenders “extend credit” to individuals and businesses. That allows individuals to borrow “tomorrow's money” to pay for something they receive today. When consumers use credit to buy something -- a car or a home -- what they are really doing is promising to repay a debt. They are actually spending their future income now, because the item or items they need cost more than they can pay at one time. – purchased items usually can be used over a longer period of time. How much you will borrow ? When is the money going to be paid back? How regularly do they pay their bills? Each of these factors will help establish individual credit histories. Credit is extended several ways, including credit cards, personal loans, car loans and home mortgages. The terms of the debt repayment include interest. The interest on credit is usually expressed as an annual percentage rate (APR). The APR usually appears in the credit terms on the credit application and takes into consideration how long it will take to pay back the loan. This rate can range from a few percentage points to 15 or well over 20 percent.. The lower the interest rate, the less money individuals will spend repaying the debt. Generally, the better your record of paying bills and the better your record of repaying car loans and home mortgage translates into a positive credit history. Individuals with a good credit history for repaying their debts on time are considered low risk and usually receive greater access to credit (easier to obtain a loan) and receive that loan at a lower annual percentage rate. Lower rates and increased access means a person pay less to borrow money than others with poor credit histories. Individual access to credit should not be determined by anything but one’s credit history. Utilizing race, religion or national origin to determine access to credit and the cost of credit is discriminatory and illegal. The struggle to provide equal access to all Americans living in all neighborhoods and communities is a basic goal of the National Community Reinvestment Coalition (NCRC) and its member organizations A Definition: Credit is an individual’s ability to borrow money -- to obtain credit cards, loans for cars, and home mortgages. Credit Reports: Over the years financial institutions have utilized credit-reporting agencies to monitor individual debt management and produce a credit report that reflects individual borrowing and money management. The better individuals manage their money -- paying their bills on time and repaying their loans, mortgages and/ credit cards -- the better the credit report. The better an individual’s credit report, the greater access individuals should have to borrowing additional money -- and the lower the annual percentage rate when they do borrow. Obtaining your credit report: Once considered a confidential document only available to financial institutions and others offering credit, legislation adopted in recent years now provides free access to credit information to all residents once each year. Your credit history is assembled into a credit report by three private companies: Equifax, Experian and Trans Union. These companies sell your credit report to banks and other creditors so they can review an individual’s past credit history. Credit reports include: A list of individual debts, such as credit cards, car loans mortgages and a record of payments of these same debts. Bills that have been defaulted or referred to an agency for collection, including items such as utility and medical bills. Tax liens, bankruptcies, and delinquent taxes are all listed going back several years. Inquiries made about an individual’s credit history by those considering offering individuals credit. The three major credit bureaus are: Equifax PO Box 105496 Atlanta, Georgia 30348-5496 Tel: 800/685-1111 www.equifax.com Experian PO Box 9600 Allen, Texas 75013 Tel: 800/ 311-4769 www.experian.com/consumer/ Trans Union LLC Consumer Disclosure Center PO Box 1000 Chester, Pennsylvania 19022 Tel: 800/888-4213 www.transunion.com Credit Scores: In order to make a credit report easier to understand and for faster evaluation by creditors, individuals are given a credit score. A credit score is computer-generated number based on a statistical model that summarizes an individual's credit record and predicts the likelihood that a borrower will repay future obligations. The higher the credit score, the better is an individual’s access to credit and the lower the APR. Building Credit: Pay your bills on time -Credit scores reflect late payments. Pay at least the minimum amount required –This maintains good credit status. Keep credit card balances low. Don't "max out" your credit cards. Don't apply for too many new credit cards, loans or charge accounts. Requesting excessive credit in a short time raises a red flag among lenders. Establish credit if you have none. Apply for one or two charge cards and use them sparingly and pay off the balance each month. Being undisciplined and forgetting to pay debts on time can have long-range negative consequences and impact the financial future of individuals and families. |