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This video discusses everything you need to know about credit and credit scores. Here are the highlights...
CLASS SUMMARY:
Credit is the ability to borrow money or buy goods or services, with the understanding that the debt will be repaid at a later date. Credit Rating is an informed, professional judgment regarding your ability to repay all of your accrued debts. Creditworthiness is an overall picture of how you handled debt repayment in the past, and how much of a lending risk you are going forward.
Credit Score which is a numerical value of your creditworthiness.
Everyone needs to be concerned about good credit. It is needed to obtain mortgages, car loans, student loans, or credit cards. Good credit may also be needed to rent or lease something, such as an apartment or a car, obtain insurance, as well as a character reference or security check for some work positions such as in defense, banking, finance, medicine, legal, or law enforcement.
Revolving Credit is typically credit card debt. Installment Credit refers to installment loans, and this category covers virtually all the remaining loan types aside from credit cards. Mortgages, car loans, and student loans are all examples of installment credit.
CRA stands for Credit Reporting Agency, or as they’re sometimes referred to, credit bureaus. There are three main agencies to know about in this business: Experian, TransUnion, and Equifax. Their function is to collect, maintain, and sell consumer credit information.
To come up with your credit score, there are two credit scoring models out there: FICO and VantageScore. They are compiled by two different companies.
FICO was once an acronym for the Fair Isaac Corporation, a major analytics software company and the inventor of the original credit scoring model. Fair Isaac Corp. changed their full name to FICO in 2009, so the acronym no longer exists. Their rating is a scale which runs from 300 to 850, with the higher number being the better score. The second credit scoring model, VantageScore, was introduced in 2006 and developed by the big three CRAs. Its rating is also a scale which runs from 300 to 850.
What exactly goes into your credit score calculation?
For FICO:
Payment History - 35%
Amounts Owed - 30%
Length of Credit History - 15%
Credit mix - 10%
New Credit 10%
For VantageScore:
Payment History - 40%
Depth of Credit - 21%
Utilization - 20%
Balances - 10%
Recent Credit - 5%
Avail, credit - 3%
Credit Ratings:
Less than 580 = Poor
580 – 669 = Fair
670 – 739 = Good
740 – 799 = Very Good
800 - 850 = Excellent
Excellent credit doesn’t just happen; it is a product of careful management and oversight, and should be an active, not a passive, activity from the time you receive your first loan or credit card in your late teens or early 20s, all the way to your most recent one. There are four major management factors to consider, and they are establishing, maintaining, monitoring, and protecting your credit.
Credit repair is a catch-all phrase that actually encompasses a number of different issues, specifically errors, fraudulent items, and negative items in your credit report. Repairing these can be an easy, quick, and cheap process, or a difficult, long, and expensive one, depending on what exactly is wrong.
Errors can be fixed by a simple dispute. Fraudulent items require numerous steps to resolve such as placing fraud alerts and contacting creditors and CRAs.
Negative items can be addressed by negotiating with your creditors.
A number of credit repair companies exist to help you out with this for a fee.
DISCLAIMER
This video was created for informational and educational purposes only, and should not be construed as a source of specific investing, financial, accounting, or legal advice. This video should never be used as the sole source of information, without consulting with a financial or legal professional to determine what may be best for your individual needs. The creator of this video, Elliot J. Gindis, does not make any guarantee or other promise as to any results that may be obtained from using the information in the video. To the maximum extent permitted by law, the creator of this video disclaims any and all liability in the event that any information, commentary, analysis, opinions, advice, and/or recommendations contained in this video prove to be inaccurate, incomplete, or unreliable, or result in any financial or other losses.
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