Hello, I just had a customer in my office. We were discussing her current vehicle needs. No one had ever explained anything about how credit works. She wanted to finance an automobile for the first time and she needed a plan. I asked her some questions and it became apparent that she or her partner had little to no credit knowledge.
Today I am writing about choices we make that will affect you credit score.
When you purchase a product or service you make a conscious decision to spend your money to own something or benefit in some way. The same thing happens with your credit score. When we make a payment before the due date on a credit card or complete a scheduled loan payment our credit score is bolstered by this action.
The two types of accounts you have reporting on your credit file are Revolving and Installment.
Revolving accounts are accounts that have a limit, a balance and a minimum payment. This type of credit is unsecured and usually comes with higher interest rates. These accounts report your payment record every month. These accounts are revolving because the balance is always changing depending on the purchases and payments applied. The credit bureaus show the date you first opened the account, the date last reported, the number of months reporting and the current balance. A history of any lates will show as well as your rating. When you make a choice to not pay the minimum set out in your agreement by the due date your late payment is automatically reported. This is a "Derog" or black mark on your credit and will effect your credit for SEVEN years.
Installment credit are loans you make at an institution for property, automobile, or personal loan. Secured loans are less risk for a bank, have lower rates and qualify for longer terms normally as there is some type of security tied to it or collateral. A good example of this is a mortgage where the bank puts a lien on the property so if you default they can repossess the house and sell it to repay the debt. Unsecured loans are personal loans that could be for a vacation or bill consolidation that will have slightly higher rates depending on your CREDIT SCORE. This type of account has same metrics as revolving credit report to Equifax or Transunion. This type of credit gives an indication on your abilty to make monthly payments and really sets the bar for increasing your credit worthiness.
The choices we make in everyday life are apparent. If I eat those extra calories I will either eat less next time, go workout or gain weight. Newton's Third Law says "every action has an equal and opposite re-action". This is a law of nature. Credit has the same principle: "Every late or missed payment will haunt you for seven years".
Thank you for reading. I'm off to work off that extra helping at dinner last night.