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Complete Credit Repair Kit (+CD-ROM)

Complete Guide to Credit Repair: This Easy-to-Use Guide Contains All the Information You'll Need to Repair Your Credit

Great Credit Guaranteed!: Improve Your Credit in Only 90 Days... or Your Money Back!

Credit Repair Answer Book: Your Answer for Raising Your Credit Score

Credit Repair

Find the path to financial freedom.

Loans, bills, and credit card charges can pile up quickly, making it a challenge to manage your debt responsibly and maintain a strong credit rating. Safeguard your economic reputation—and your future—by learning to:

Borrow wisely and pay back promptly
Identify, avoid, and recover from financial pitfalls
Obtain and decipher your credit report

What Is Credit?

Credit is money loaned to you by a creditor, or lender, in return for a promise of future repayment. Creditors include credit card companies, banks, and stores at which you have a charge card. Credit allows you to acquire goods and services in advance of paying for them. In exchange, you agree to make regular and timely payments on the outstanding debt you owe to the creditor, usually with interest.

The Three Kinds of Credit

There are three basic kinds of credit: installment credit, revolving credit, and open credit.

Installment Credit

Installment credit refers to loans that require fixed payments at regular intervals. The amount you pay at each interval does not change. Installment credit is also sometimes called closed-end credit. Examples include:

Car loans
Mortgage loans
Personal loans (a loan from a lender that is not secured by any property)
Student loans
Recreational item loans (a loan for a boat, computer, flat-screen TV, and so on)

Revolving Credit

Revolving credit allows you to use or withdraw funds at any time up to a specified dollar amount. At the end of each billing cycle (typically one month), you can pay back the balance in full but are required only to make at least a minimum payment, which is some portion of the larger existing debt. Any amount left unpaid is carried over to the next billing cycle, and interest charges are typically levied. Revolving credit is also sometimes called open-end credit. Examples of revolving credit include:

Credit cards
Bank account overdraft protection
Home equity lines of credit
Store-specific charge cards

Open Credit

Open credit is the term for accounts through which you pay for services rendered (as opposed to repayment of a loan). These accounts call for full repayment each billing cycle. Examples include:

Electricity
Gas
Other utilities

Your Credit History

Your credit history is a record of how you have used and managed credit in the past. Nearly every financial transaction in your life involving credit over the past seven years (and sometimes up to fifteen years) is recorded in your credit history—from your payment history on your credit card, to your history paying off your car loan, to any tax liens or bankruptcies you’ve endured. Lenders examine your credit history to determine whether to grant you credit and, if so, at what terms.

If you have a positive credit history—which means you repay your loans or other credit in full and on time— you’re said to have good credit. With good credit, you’re likely to qualify for loans with the most favorable terms, including the best interest rates.
If you have a poor credit history—which means you fail to pay back your loans or other credit either in full or on time—you’re said to have bad credit. With bad credit, you may have to settle for higher interest rates and larger down payments on car or home mortgage loans. In some cases, you may be turned down for loans entirely.

Why Credit Matters

Credit is crucial to nearly every major financial decision you make, such as buying a car or a home. It’s also crucial to minor everyday money matters, such as buying lunch with a credit card. Since securing credit is such a key part of ensuring your financial freedom, it’s important to establish your reputation as a borrower by proving to creditors that you can pay back money you’ve been loaned.

Your Financial Reputation

The phrase your credit refers to your financial trustworthiness as perceived by a potential lender. It’s a measure of the lender’s confidence in your ability and intention to repay your debts. It might be helpful to think of your credit as your financial reputation:

If your financial reputation is good, lenders will want to lend money to you.
If your financial reputation is poor, lenders may be less willing to lend you money.

Financial Consequences of Having Good or Bad Credit

The lower interest rates people with good credit receive can result in tens of thousands of dollars in savings. For instance, a person with good credit may be able to get a home mortgage at an interest rate a full percentage point lower than the rate that a person with fair to poor credit may be able to get.

Over time, even a single percentage point can make a big difference. The table below illustrates the difference in monthly, yearly, and total costs for a 30-year fixed-rate $200,000 mortgage at 6.2% versus 7.2%:

Interest Rate	Monthly Cost	Yearly Cost	Total Cost of Mortgage
6.2%	$1,225	$14,699	$440,978
7.2%	$1,358	$16,291	$488,729

Over the full course of this mortgage, having good credit results in savings of nearly $50,000.

Additional Consequences of Having Good or Bad Credit

Beyond your ability to get loans at good interest rates (or at all), the quality of your credit may also impact your ability to rent an apartment, obtain insurance, or even find employment.

Credit Bureaus

Your credit history, and the credit histories of every other American consumer, are collected by private, for-profit companies called credit bureaus or credit reporting agencies. There are three major credit bureaus:

Equifax
Experian
TransUnion

Credit Reports and Credit Scores

Using data they gather from your credit history, each credit bureau creates a credit report and credit score for you:

Credit report: A written report that includes entries on each of your credit accounts and credit “events” (such as a bankruptcy or tax lien), as well as any other information that may affect your credit.
Credit score: A numerical score that is based on your credit history and reflects your creditworthiness. The score range is 300–850, with 850 marking absolutely perfect credit.

Creditors use these credit reports and credit scores to make decisions about whether to grant credit to an applicant.

Credit Bureaus and Creditors

Creditors are the primary source of the information that credit bureaus gather, as well as the primary consumer of the product that the credit bureaus sell. The relationship between creditors and credit bureaus works as follows:

Creditors submit data about your credit accounts to the credit bureaus.
The credit bureaus process information from multiple creditors into credit reports and credit scores.
The credit bureaus sell the credit reports and credit scores back to the creditors.
Creditors (and others) use the credit reports and credit scores to evaluate applications from individuals for credit, insurance, employment, rentals, and so on.

Some creditors provide their information to all three credit bureaus and use all three credit reports and scores to make decisions about potential borrowers. Other creditors have relationships with just one or two credit bureaus and therefore do not provide information for your accounts to all three bureaus. As a result, your credit report and credit score from different bureaus may be slightly different.

Other Sources of Credit Bureau Information

Credit bureaus also collect credit information on an ongoing basis from the following sources:

Debt collection agencies (agencies that collect debts on behalf of a creditor)
Public records

Other parties may report information about your accounts to the credit bureaus but only when your accounts are past due or have been referred to a collection agency. These other parties that may report your information include: