What is Credit?

What Is Credit?

We depend on credit for so many important things in life – whether it's for buying a car, house, computer and even getting a student loan.  A three-digit number – your credit score – can determine whether you can do these things and even how much it will cost you.

When a person fills out an application for credit from a bank, store, or credit card company, their information is forwarded to a credit bureau (i.e. Experian, TransUnion, & Equifax).  The credit bureau matches the name, address, and other identifying information on the credit applicant with information retained by the bureaus.  This information is used to determine an individual's credit worthiness; that is, determining an individual's willingness to repay a debt.  The willingness to repay a debt is indicated by how timely past payments have been made to other lenders.  Lenders like to see consumer debt obligations paid on a monthly basis.

The other factor in determining whether a lender will provide a consumer credit or a loan is dependent on income.  The higher the income, all other things being equal, the more credit the consumer can access.  However, lenders make credit granting decisions based on both ability to repay a debt (income) and willingness (the credit report) as indicated in the past payment history.

The Affects of a Low Credit Score

If you aren't careful about your credit, you could end up paying dearly for a low credit score.  Not only can a low score stand in the way of getting a loan for your dream home or dream car, but even if you do get the loan, a less-than-stellar score will make it expensive.  As your credit score decreases, you become more of a credit risk in the eyes of lenders.  This means they'll attach a higher interest rate to your loan, and your monthly payments will jump.  On the other hand, a high score will lower that interest rate. 

In addition to banks and lenders, there are landlords, merchants, employers and insurance companies jumping on the credit score bandwagon.  Credit scores are also used determine insurance rates, which causes consumers the most alarm. 

In the United States, insurance, housing, and employment can be denied based on a negative credit rating.  Usage of credit histories in employment screenings has increased 35% in recent years. 

Defaulted debts (unpaid bills) are placed by an alleged debt owner on a person's credit record, and usually remain for several years, particularly if the debt has been referred to a collection agency or subject to court judgments.

All this adds up to say that credit scores are enormously important. So putting a little thought into improving your score could prove a good investment.

If you have an account placed with MMCB, please contact one of MMCB’s fair and friendly Collection Specialists immediately at 800-788-4405. 

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