Credit is the ability to buy now and pay later. It takes credit to get an auto loan, a mortgage and other types of financing. Your credit score says a lot about your credit habits. This is a three-digit number ranging from 300 to 850, and it tells creditors how likely you are to pay your bills. The higher your credit score, the better your chances of getting approved for financing and the lower your interest rate will be.
Credit has many benefits. Most people can’t pay cash for homes, college education or new cars. Without loans, buying a house or car would be impossible for many. And since it takes credit to build credit, many people apply for their first credit card in college to establish a credit history. A credit card also provides emergency funds when we’re short on cash.
Although we use credit regularly as consumers, there are dangers associated with credit. We can avoid some of these problems with responsible use. But unfortunately, credit management education isn’t taught in high school, and many adults don’t learn about credit management until after they’ve made mistakes.
Potential Dangers of Credit
Credit puts a lot of things within our financial reach, so it’s easy to get in over our heads. We might not have enough in savings to purchase an electronic device or take a vacation, but with one quick application, we can get approved for financing and take advantage of life’s pleasures. There’s nothing wrong with getting a loan. But some people can’t stop using credit and they get into serious debt.
Too much debt has a significant negative impact on your personal finances. Paying off that debt will reduce your available disposable income to build an emergency fund (if you haven’t done so already) or save for retirement a house or other large purchases.
Of course, debt isn’t the only thing to be concerned with. Getting credit also means you’re vulnerable to identity theft. This is one of the fastest growing crimes in the U.S. And while some people think it can’t happen to them, no one is invincible.
Keeping Your Credit Report Accurate
Identity theft involves someone stealing your personal information and purchasing items in your name or opening new accounts in your name. It can drive down your credit score and take several months or years to fix. Identity theft often goes unnoticed because some people never monitor their personal credit reports or file credit disputes
You might wonder, what is a credit dispute? As a consumer, you have the right to check your credit history and receive one free credit report from each of the bureaus annually. Also, according to CreditRepair.com, you’re entitled to ask questions about anything included within your credit reports.
Being proactive keeps your credit report free of errors, plus you’re able to detect unfamiliar account activity that could be a sign of identity theft. Credit report disputes are absolutely necessary if your credit report is inaccurate because these inaccuracies can hurt your credit score.
If you don’t know how to dispute credit report errors, you might feel powerless to fix your situation. However, filing a complaint and challenging errors is easier than you think. If you request a free credit report online from AnnualCreditReport.com, you can file a dispute directly from the website. Or you can write and send a dispute letter to each of the credit bureaus. The bureaus will start an investigation. And if able to confirm errors or fraudulent activity, these items must be updated or deleted from your report within 30 days.
Your credit history determines whether you’re able to buy a house or a car. Even finding work in some occupations requires a good credit score. So it’s important to use credit responsibly by paying your bills on time and keeping your debt manageable. Also, don’t forget to check your credit report at least once a year to make sure all information is accurate and up-to-date.