WEEK 1: CREDIT KNOWLEDGE
New to the Live Richer Challenge: Credit Edition? Learn more about it HERE.
Need to catch up? Click on yesterday's task and then come back.
Day 2: Credit Basics
Today’s Easy Financial Task: Learn about credit and your credit report
How to rock this task:
- Learn about credit
- Learn the purpose of a credit report
You've made it to the second day of the Challenge. Woot! Woot!
Today we’re going to dive into credit basics including what credit is and why it’s important. We’ll also discuss what a credit report is. Let’s get to it!
What is Credit?
There are two definitions of credit:
When an entity offers you a product or service that you agree to pay for later, they’re offering you this product or service on “credit.” In this case, credit is the promise or “IOU” with the understanding that you will pay later.
The second definition of credit is how good (or bad) you are at keeping the above promise. If you have “good credit,” it means you’re generally good at sticking to the agreement of paying your debts.
What Is A Credit Report?
A credit report is a detailed record of your financial history (like your ability to repay debt on time) and public records. It’s like your “money report card.”
Credit bureaus store financial data about us in huge databases. The financial information in the databases comes from data reported to the bureaus by our creditors.
When we (or other entities) search for our name, address, and social security number within the database, it pulls information about us and compiles it into an easy-to-read report.
The final product is (drum roll) your credit report. You can jump ahead of tomorrow’s task and get your FREE report here: www.annualcreditreport.com.
This site will not ask for your credit card. It will ask you to verify information that only you know about. Make sure you have access to a printer so you can print each one or save as a .pdf to access it later before you close your screen and lose access.
Items that appear on your credit report include:
- Personal Information: like your social security number, address, date of birth, and employer
- Open and Closed Accounts Including: credit cards, mortgages, loans, etc., and the payment history on each account
- Public Records: like bankruptcies, liens, or judgments, and accounts in collections
- Credit Checks (also called credit inquiries): from lenders, employers, and other companies that you give authorization to check your credit report
The Three Credit Reporting Agencies
There are hundreds of different credit reporting agencies that collect information about us, but there are three major ones: Equifax, Experian, and TransUnion.
These three bureaus collect financial data and sell the information to other entities, including us. The information is sold to us if we sign up for services like identity theft or credit monitoring.
Sidebar: Superman’s (my late husband’s) identity was stolen and it resulted in someone buying a car in his name, running tolls, lights and eventually having a car accident. He had to go to court four times as a result. Yikes!
He signed up for an Identity Theft service and it stopped instantly. It’s worth it!Here’s A Tool I Recommend For Credit Score Monitoring: SoFi...Yes! SoFi allows you to monitor your credit score...for FREE! While SoFi does not offer Identity Theft coverage, you can contact one of the 3 credit bureaus to enroll in their Identity Theft Coverage service and protect yourself against Identity Fraud!
Get your Credit Score with SoFi for FREE here:
Back to who gets your financial information….
Your information is also sold to creditors for their review when you apply for credit. (In order for these creditors to check your report, they must get your authorization. A credit check results in a credit inquiry on your report. We’ll talk about the impact of inquiries on your credit report on Day 4 of this Challenge.)
Since there are three main credit bureaus, you also have three credit reports; one from each reporting agency.
Although most of the information on your credit reports will be similar, there may be some small differences. This is primarily because creditors are not required to report your credit history to all three of the credit reporting agencies.
They may report to one, two, or none at all!
Why Credit and Your Credit Report is so Important
Financial institutions, employers, telephone providers, and other companies review the information on your credit reports to determine your creditworthiness.
Creditworthiness is an evaluation of how likely you are to repay debt in the future. Creditors make a judgment about your creditworthiness by reviewing items on your reports like your payment history and the amount of debt you have. Based on this judgment, they decide whether or not to extend you credit and at what interest rate.
Keeping your credit report void of negative records like late payments and unpaid balances is important because poor financial history can hold you back from qualifying for a low-interest rate or qualifying for forms of credit at all.
Why Credit Isn’t All Bad
Let’s address the elephant in the room: credit is a form of debt!
Usually, when we talk of debt, we think bad news...
However, using debt responsibly isn’t always negative. For example, buying a home with a home loan can be a worthwhile investment.
- You need a positive credit history to qualify for that home loan.
- You need to use credit responsibly to establish that positive credit history.
Don’t worry, I’ll show you how during this Challenge.
That’s it for today Dream Catchers!
We covered a lot of information, so feel free to reach out if you have any questions... Leave a comment below!
Remember to reach out to your accountability partners to encourage each other through the Challenge. Check into the Dream Catchers: LIVE RICHER group as well.
What's your KEY takeaway from today's task? Share in the comments! Then...
Share what you’ve learned today with your social media friends...tag me @thebudgetnista
P.S. Don’t forget to get your free Live Richer Challenge: Credit Edition Starter Kit. Get it here.P.P.S. Here’s a copy of the Challenge Calendar. It’s a fun way to keep track of your progress.
You can also reach out to me here:
My Lisa Rule: I have 4 sisters and Lisa is the baby (well she’s not a baby anymore). Of all of my sisters, I’m the most protective over her. Before I share any product or service with you, it must pass my Lisa Rule.
What’s the Lisa Rule? If I would not advise Lisa to use a product or service, I won’t advise you to either. YOU are my Lisa's. I feel protective over you and your financial journey.
The products and services I recommend pass my Lisa Rule. Yes, I may be an affiliate or partner and earn a commission off of referrals or income, but I would not recommend a product or service that I didn’t believe was helpful and useful.
Share the wealth!