Credit addresses the concepts of obtaining and utilizing credit wisely. Individuals should be able to differentiate between the types of credit available, identify the financial institutions where credit can be obtained, be familiar with the credit application process and understand the possible financial and legal implications of using credit. They should also understand the information that is contained in their credit reports, their credit scores, how consumer reporting agencies work.
Credit is a contractual agreement whereby a borrower receives something of monetary value now and agrees to repay the lender at a later date. Once credit has been accepted and is utilized it becomes debt, an example of this would be an individual is approved for a credit card. Once the card is used to purchase an item the subsequent balance would be considered debt and the remaining available line on the card is still credit.
Individuals need to understand how credit works and how to properly manage it. Good credit can take years to establish yet only months to destroy. Individuals need to be comfortable with the credit process as having a strong credit history will carry greater weight with the future creditors, employers, insurers, etc. Part of financial independence is having access to lower cost financial service products and today many of those are tied to our credit scores.
Individuals will find there is much to learn with respect to credit. The process of obtaining credit can be quite overwhelming, especially if one has little or no credit history.
Once an individual does have credit it becomes equally important to monitor their credit history as it is being reported to consumer reporting agencies. There are certain rights individuals have relating to who has access to their information and what can be reported about them. The Fair Credit Reporting Act (FCRA) is the federal law which covers some of these rights, below is a brief summary of an individual’s credit reporting rights:
- Obtain a copy of their credit report.
- Know who has received a copy of their report.
- Dispute inaccurate information.
- Even if negative information is included, to explain the circumstances.
- “Opt-out” to prevent credit bureaus from using their information for marketing.
- Complain to the appropriate government agency or file a lawsuit.