It is true that credit has allowed the great American economy to push new boundaries. Without credit, consumers would be left gawking at display windows instead of enjoying their dream products immediately. Businesses and startups would also fail if it were not for credit. The credit industry, for better or worse, has made the U.S. reliant on plastic.
Credit, however, has its limitations and downsides. With more Americans getting credit, it is fast becoming more difficult for creditors to pay off unsettled balances. Because of the poor economy and unemployment problems, more cardholders are unable to pay their bills on time, generating more losses for the credit industry.
Most people's understanding of how credit works are minimal. Majority of consumers know that maintaining good credit standings is crucial to get financial services in the future, but that's about it. How the credit system works in detail eludes many consumers. Creditors and financial institutions exploit this lack of knowledge and use it to their advantage.
Credit plays a large part in the American way of life. Everything from housing loans, car loans, refinancing options, and even groceries, involve the use of credit. Cash is fast becoming harder to earn. Because of this, a growing number of families are turning to plastic for their everyday needs. Unbeknownst to them, unregulated and uninformed use of credit can add more financial burden.
Cardholders need to be aware of the different factors and dynamics that affect credit records and ratings. Creditors and lenders rely on a consumer's credit history to assess their credit worthiness. Cardholders with good credit reports are more likely to be extended financial options than consumers with spotty records. Knowing what makes reports relatively spotless is essential for consumers to maintain good financial standings.
By law, only three credit bureaus are authorized to collect, organize, and store the important financial data of consumers. The information they collect come from a variety of sources including card companies, banks, lenders, and other financial institutions. These records do not only contain purchases, charges and payment histories. They also contain relevant remarks and comments from different creditors about a particular consumer's credit worthiness.
The cardholders' spending habits and credit usage affect credit scores and ratings. Late payments will also contribute negatively to a credit rating. Outstanding balances, loans, and declarations of bankruptcies can also mean lower credit scores for consumers. Avoiding all these instances can go a long way in improving credit reports and ratings.