What Is Credit?

A credit score is primarily based on a credit report, information typically sourced from credit bureaus. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.

Your credit history is summarized in files known as credit reports, compiled by three independent credit bureaus—Experian, TransUnion and Equifax.

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Information in your credit report includes:

• The number of credit card accounts you have, their borrowing limits and current outstanding balances
• The amounts of any loans you’ve taken out and how much of them you’ve paid back
• Whether your monthly payments for your accounts were made on time, late or missed altogether
• More severe financial setbacks such as mortgage foreclosures, car repossessions and bankruptcies

Types Of Credit

Credit can be an incredibly handy and effective financial tool when it’s used responsibly. As our society becomes more cashless and convenient, more ways of borrowing money are cropping up. Here are four ways you can borrow money from a grantor, each of which have their own advantages and disadvantages.

• Revolving Credit: One of the more common types of credit, revolving credit allows you to borrow money up to a certain amount. The lending institution will set a credit limit, often based on your credit score, and revolve the balance by rolling month to month until the debt is paid in full.As you’re paying back the money, interest charges will typically occur. Each month, the difference between the maximum credit limit and your current balance is available to be borrowed again. Most credit cards like Visa and Mastercard are considered revolving credit.
• Charge Cards: A charge card, different than a credit card, cannot carry a balance. This means it must be paid in full each month. If the balance is not paid on time and in full, penalty fees are often added. Charge cards are mainly for convenience and are advantageous against accumulating credit card debt. American Express is a company that mainly offers charge-cards (although they do offer credit cards now as well).
• Installment Credit: When you take out an installment loan, the borrower loans you a set amount of money and gives you a timeframe to repay it. Interest charges are pre-determined and calculated into set monthly payments. Mortgage loans and auto loans fall into this category, as do personal loans.
• Service Credit: Also known as non-installment loans, service credit loans allow the borrower to pay for a service or membership at a later date. Often, the payment is due the month following the service. Unpaid balances can incur a fee, interest or other penalty charges. If the borrower does not pay, the service is canceled. Many bills like your cell phone, gas, electricity and water bill fall into this category.

Is Credit Repair Right For You?

Take our survey and see if credit repair is right for you. US Allied Financial is here to help you meet your credit score goals. Our credit repair services can help you work to remove the inaccurate or unfair negative items listed on your credit report.