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The Last Word with Experian Director of Public Education, Rod Griffin

Congratulations! Now that you’ve read this e-book, you’re more informed about credit, credit reports, and credit scores. But before we go, we wanted to give the last word to Rod Griffin from Experian who can tie it all together for you.

Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod works with consumer advocates, financial educators, and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.

  1. Why is your credit score important? 

Credit scores are a tool used by creditors to predict lending risk. The numbers reflect the information in your credit report. A good credit report, reflected in good scores, will save you money. Good scores result in lower interest rates, reduced security deposits for things like utilities, help you qualify for a lease, and reduce your insurance costs.

  1. How can credit be used wisely? 

Credit and debt are not the same thing. They are obviously very closely related, but you can have credit without debt. For example, you can use a credit card to make purchases that earn points, airline miles, cash back or other benefits and pay the bill in full each month. You get the benefits offered by the credit but don’t have any debt or pay any interest or fees. Wise use of credit helps you qualify for services at better terms, which saves you money. Another example is reserving a rental car and then paying cash when you return it. Rental companies often require a credit card to rent the vehicle, simply to protect them from damage to the car or a person driving away in it. Most people cannot afford to purchase a home with cash. Wise credit use, reflected in a good credit history and high credit scores helps you qualify for a mortgage loan at a low rate, saving potentially thousands of dollars. It also helps you pay lower deposits for utility service and possibly lower insurance rates. Neither are debt, but good credit use can save you a lot of money.

  1. How can credit be used poorly? 

Using credit to purchase things you cannot afford, in order to live beyond your means, is poor credit use. If you are taking on credit card debt, ask yourself what you are buying. If you can’t name exactly what you’ve bought, it’s just a bunch of stuff and you’ve used credit poorly. Poor credit use is making credit purchases, taking on debt, without a plan that specifies why you are taking on the debt, how it will be repaid, when it will be repaid, and what other purchases you will either delay or not make until that debt is repaid. Using credit is always a tradeoff. Any time you take on debt you have to know what other things you’ll need to give up until it is repaid.

  1. What is a credit score? 

A credit score is a tool used to analyze the information in a credit report to predict the risk of doing business with someone. Usually, a credit score helps lenders determine the risk that a person will not repay a debt as agreed. However, credit scores are also used for other purposes. For example, insurance companies may use a credit score to determine whether a new customer will pay their premiums on time. Or a landlord may use a credit score for insight into whether a person will pay the rent on time.

  1. How is your credit score determined?  

Credit scores use the information in a credit report to do the calculation. They simply reflect the information in the credit report at the moment the report is requested. Your payment history is the most important factor to all credit scores. Paying your bills on time is essential to having good credit scores. The second most important factor is your utilization rate on credit cards. Utilization is simply the total of your balances divided by the total of your credit limits. A high utilization rate shows that you are overusing your credit and so represent a serious risk. Those two factors account for between 60 percent and 70 percent of a credit score. Scores also consider how long you’ve used credit, what your mix of credit types is, and what has happened recently in your credit history.

  1. What does it mean to have bad credit? 

Bad credit is a term used to describe a credit history that represents high-lending risk. It usually means the person has late payments, collection accounts or other serious issues such as bankruptcy in their credit history. The result is that lenders will be reluctant to grant credit to the person, and if they do qualify, it will be at higher-interest rates or with increased down payment requirements. Bad credit costs you money.

  1. How can you improve your credit? 

Time and changing your credit management behavior is the key to improving credit. You have to bring delinquent accounts current, make all of your payments on time and reduce your debts, especially credit cards. Over time, the negative information will be deleted from your credit report and the positive information will remain.

  1. Predatory lenders like payday and title lenders prey on those with poor credit scores and little financial understanding. What are the general practices someone can take today to improve their relationship with credit and ultimately protect themselves from predatory lenders? 

The first thing a person should do is establish a credit history and work to maintain it. That means they need to open a credit account, or have their positive rent payments reported. Over time that positive history will enable them to qualify for lower cost credit and break the cycle of predatory lending. Everyone should check their credit reports at least once a year to ensure it is accurate, that there is no sign of fraud and that their credit will work for them. Reports are free once every twelve months at AnnualCreditReport.com.

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