Each year, thousands of American consumers aiming to get out of debt or interested in improving their credit rating or keeping tabs on their credit report seek the financial peace of mind offered by credit monitoring services. These consumer-oriented programs, which are available through the three leading credit reporting agencies (TransUnion, Experian, and Equifax), provide subscribers with periodic reports concerning their credit file and mechanisms to track, manage, and safeguard their identity and credit information. By allowing subscribers to monitor updates on the status of their credit data, credit report monitoring obviates the need to continuously consult the latest credit reports. Consumers receive alerts about likely reporting and posting mistakes and are informed of their latest credit standing. Credit monitoring also serves as a powerful shield against fraudulent activity and identity theft. Subscribers pay a small fee-usually less than $10 per month- to obtain these credit services. When shopping for a credit monitoring program, consumers should select one that offers the most competitive price and favorable options and that best corresponds to their needs.

In addition to furnishing subscribers with credit reports from the three major CRAs, the average credit monitoring service offers numerous tools for insuring against identity theft, warning of changes in the credit report, and analyzing credit profiles. Each credit bureau must, upon the consumer’s request, furnish him or her with one free credit report per year. Typically, credit monitoring providers scrutinize and analyze essential components of their subscribers’ credit report and score on a quarterly basis and track changes in the latter from one quarter to the next. By tracking key elements of consumers’ credit such as outstanding balances or delinquent accounts, the monitoring service helps subscribers observe trends in their credit report that may be impacting their credit rating. Ongoing enrollment in a credit monitoring program is highly recommended for individuals who are victims of identity theft, particularly those whose social security numbers have been compromised. It will enable them to receive warnings of future security breaches.

Credit agencies usually offer a wide array of credit monitoring tools including the following:

1. Monitoring alerts

Subscribers to monitoring services are immediately informed – within 24 hours – of any changes to their credit file, and they can select their preferred medium of notification- wireless phone, email, or text message. Such notifications enable consumers to detect fraudulent activity quicker and consequently reduce its adverse impact on their credit. Credit monitoring services generate alerts on a weekly basis after surveying hundreds of data sources for changes relating to the following types of information:

name (new account opened in subscriber’s name) social security number phone numbers address date of birth employers accounts (new accounts; bank account openings) collection company records account balances public records (i.e. tax liens, foreclosures, bankruptcies) problem accounts credit card applications/loan applications inquiries by lenders

Credit monitoring services also provide user-friendly charts displaying changes in the 1) number of delinquent accounts, 2) number of negative items on the credit report, 3) number of recent credit applications, 4) outstanding balance on all accounts, and 5) FICO score. Subscribers are notified in real time whenever modifications have been made to their credit rating and are furnished the reason for those changes. They also receive alerts regarding changes to their credit report including late payments, new accounts, recent inquiries, as well as fraudulent activity. Such information protects consumers against those attempting to assume their identity for purposes of obtaining financing. One important benefit of subscribing to a credit monitoring service is that identity and credit fraud is uncovered instantly, instead of months after the fraudulent activity has taken place.

2. Detailed credit analyzer

Credit monitoring services also provide in-depth analyses and charts that show subscribers how to increase their credit rating and inform them of the different factors and activities that are taking a toll on their score. Credit reporting agencies also inform subscribers of the rates for which they might be eligible and offer useful tips on how to boost their credit rating. Credit analyzers show which actions increase the FICO score the most and how much time is needed to effectuate such an improvement. They also show how defaulting on one or a few payments can impact the FICO score and report. Credit analyzers are a very useful tool for consumers working diligently to boost their credit rating.

3. Online record of credit monitoring activities

Credit reporting agencies offer subscribers to their credit monitoring program the opportunity to view an online history of all reports and alerts by date.

In the credit-oriented world in which we live in, American consumers and businesses have a plethora of choices in terms of loans and lenders. A wide variety of financing sources offer multiple forms of consumer credit and/or commercial credit. Lending institutions differ in the 1) types of loans they extend and their maturity dates, 2) interest rates and charges they impose, and 3) eligibility criteria that applicants must meet. Some forms of credit require a lump sum payment of interest and principal, whereas others must be repaid monthly or annually. Consumer or commercial loans may require prospective borrowers to pledge some form of security as guarantee of repayment, while others require solely the latter’s promise to pay. To make an educated decision on which creditors can furnish the type of financing that best suits their needs, consumers should familiarize themselves with the distinctions and defining features of consumer credit and commercial credit.

Consumer credit

This consists of a short-term loan designed to assist individuals in purchasing services or commodities primarily for household, family, or personal consumption, as opposed to business use. If the applicant is acting in a private capacity when seeking financing, then it is deemed to be consumer credit. Borrowers may utilize consumer loans to finance debt consolidation, home improvement, and the purchase of household appliances, automobiles, boats, recreational vehicles, a college education, and electronics, among other things. Consumer credit may be either unsecured or backed by funds in a bank account or an assignment of title. The rate of interest on consumer credit tends to be higher than that on business credit.

There are several categories of consumer credit:

1. Installment credit

Alternatively referred to as closed-end credit, installment credit requires consumers to repay the purchase price by making a series of equal periodic payments (usually monthly) of the principal and interest. Department stores offer this type of credit. Installment credit is widely utilized to finance the purchase of an automobile, furniture, and high-end electronics and appliances, such as computers, washers, and ovens. A specific monetary sum constituting the full purchase price of the goods is extended to the borrower, who must then repay the amount of credit received (principal) plus interest within a fixed time frame. If there is title to the property, the lender retains it until the borrower pays back the credit in its entirety.

2. Non-installment credit

This refers to consumer credit that is typically of short duration (i.e. thirty days) and that must be repaid in a lump sum. Also known as term loans, single-payment loans enable borrowers to purchase a product today and repay the principal and interest on a pre-determined date. Many department stores allow their regular customers to avail themselves of non-installment credit.

3. Open-end or revolving credit

The perfect embodiment of open-end credit are credit cards and charge accounts (i.e. Macy’s and Sears). With revolving credit, consumers may borrow additional funds when needed without having to complete a new application and can make partial or irregular payments. The balance must not exceed the line of credit or credit limit, which usually depends on the cardholder’ ability to repay the debt and his or her credit history. Upon being assigned a credit line, the debtor decides the amount of funds that he or she will utilize at any given time. Generally, borrowers make monthly or periodic payments subject to a pre-set minimum balance due established by the creditor. The minimum amount is usually either a percentage of the balance or a stipulated dollar figure. Debtors may choose to 1) pay the minimum amount, 2) pay more than the required minimum, or 3) repay the entire outstanding balance.

4. Home equity loan

This type of consumer credit, which relies on the equity that a borrower has in his or her home as security, is a convenient method of financing and offers competitive interest rates. Home equity loans may come in the form of installment loans or lines of credit (HELOCs).

5. Personal line of credit

Consumers may also apply for a personal line of credit, which allows them to withdraw funds at their convenience in order to deposit them into their checking account or purchase goods and services. The creditor furnishes the checks to the client, who may utilize them subject to the credit line’s limit. The interest charges depend on how long the funds have remained unpaid and how much the outstanding balance is.

Commercial credit

This category of financing comprises short-term credit that is extended to a business entity or individual for business purposes, such as increasing inventory. If a consumer applies for credit in a business capacity, the credit in question is commercial in nature. Also known as business credit, commercial credit involves an implicit understanding that the business will pay its supplier pursuant to the terms and conditions agreed upon at the time of purchase. Business entities may also secure bank loans from participating lenders. The amount of commercial credit provided is usually dictated by a number of factors including the following: (1) the corporation’s credit history, (2) the value of the assets capable of being utilized as collateral or converted into cash with ease, (3) the ratio of assets to the outstanding debt, and 4) the present worth of the holdings in the prospective borrower’s custody.

Commercial lenders offer a broader choice of credit options than do other creditors. Short-term loans, which are generally for a duration of less than one year, equip businesses that are temporarily cash-strapped with working capital. Upon converting their accounts receivable or inventory into cash, the businesses repay the loan in a lump sum. Intermediate loans, which boast a term of one to three years, are ideal for increasing capital, expanding, buying new equipment, and starting-up a business. Long-term loans are equally useful for business start-ups but also for purchases of fixed assets and for capital improvements. Debtors usually repay these loans on a quarterly or monthly installment basis. Businesses can also apply for a line of credit, which allows them to obtain funds repeatedly without needing to reapply, on the condition that borrowers stay within their credit limit. They will be required to submit financial statements to the lender once a year.

Business credit cards are also available for businesses and are ideal for small to medium-sized enterprises with less than 100 employees and an annual budget running under $1 million. Businesses with substantial employee expenses may consolidate their bills by applying for a central billing card. Other credit cards for businesses include commercial credit cards and corporate credit cards, the latter generally reserved for companies with more than 100 employees and a yearly income exceeding $1 million.

Prior to granting consumer or commercial credit, finance companies, retailers, and banks gauge an applicant’s credit-riskiness. They do so by obtaining a copy of the applicant’s consumer credit report from a credit reporting agency or credit bureau. Some of the information contained in credit reports includes the consumer’s payment history, borrowing activities, and public records such as monetary judgments, tax liens, and bankruptcies. Credit bureaus rely on this data to determine a borrower’s credit rating or credit score.

In today’s consumer credit driven world, a good score affects many things for individuals, including their ability to avail loans and credit cards. A good credit rating also determines the type of interest rates and insurance premiums consumers are able to obtain from companies. Credit ratings are provided by three major credit bureaus in the U.S., Equifax, Experian and TransUnion. Their job is to collect and compile every individual’s information for the purpose of establishing credit scores. The process also involves creditors, as they are responsible for reporting information to the credit bureau when inquiries are made into a person’s credit. There are several things that can qualify as “inquiries,” which affect an individual’s credit rating, including the following:

Applications for new credit cards Loan applications: mortgage loans, car loans, personal loans etc. Late bills payments Credit checks performed when individuals rent property or get employed

Along with the data gathered by creditors, the files held by credit bureaus also incorporate other pertinent information, such as an individual’s employment history, previous addresses/phone numbers, bankruptcy filings, evictions etc. The information contained in a consumer’s credit report usually remains on file for a total of seven years before credit bureaus remove it. When it comes to deciding whether or not to grant a loan, most lenders tend to take an average of the credit ratings provided by all three credit bureaus.

Unfortunately, not everyone is satisfied with their credit rating, as life can be extremely difficult for those who suffer from bad credit. Because they are labeled as bad credit borrowers, many lenders are often reluctant to work with them. Consumers with bad credit are also required to pay significantly higher interest rates due to the greater risk involved for the financial lending institution. However, the good news is that consumers can improve their credit rating as long as they learn how to work with credit bureaus. For example, many individuals may be unaware of the fact that when denied for credit, they are legally entitled to a free copy of their credit report, as mandated by U.S. legislation.

When credit is denied, consumers should also receive a notification letter in the mail. The letter usually contains the name of the credit bureau responsible for providing the rating in response to their credit application. This information also informs consumers which credit bureau they need to work with for the purpose of restoring their credit rating. By law, there are several pieces of key information that consumers are required to provide when requesting a copy of their credit report: 1) full name, 2) current address, and 3) social security number.

Once individuals receive their credit report, they need to review the contents thoroughly for any errors and omissions. While credit bureaus do their best to provide exact and up to date information, they are no exception to human error. This is where the Fair Credit Reporting Act comes into play. The purpose of this act is to ensure that credit reporting agencies provide accurate information on consumer credit histories. If consumers do find faulty items within their credit report, and are able to prove the inaccuracies, the Fair Credit Reporting Act can be of great help. This is because credit bureaus are required to fix the errors in order to ensure the right information is included for future credit reports which are requested.

Regardless of whether they are applying for any type of financing, it’s extremely important for individuals to check their credit report every year. The information can be obtained online in a quick and convenient manner, and the best part is, it’s free for consumers to obtain once a year. Not only are consumers able to ensure accuracy, but they are also made aware of any discrepancies which may exist. This allows them to take the necessary steps to rectify their credit rating before it’s too late.

From credit cards and auto loans to residential mortgages, home equity loans, and personal lines of credit, consumer credit facilitates the daily lives of millions of Americans by providing convenience and fiscal flexibility. This indispensable and valuable monetary tool offers numerous benefits including the following:

Ability to satisfy basic consumer needs Ease of use Opportunity to shop online in lieu of visiting merchants in person Immediate acquisition of merchandise and services and payment at a later date Elimination of the need to transport a significant amount of cash when purchasing expensive items Chance to improve one’s credit limit and creditworthiness by making timely payments and regular purchases Convenient shopping Potential to establish a credit history More effective budgeting via monthly statements setting forth all expenditures

Along with credit history, one of the most critical and determinative criterion in the financial undertakings of borrowers is the credit score, a three-digit number that is calculated on the basis of information contained in the consumer credit report. Credit scores typically range from 300 to 850; the score improves as the number increases. Lenders utilize this numerical figure, also known as a credit rating, to assess an applicant’s creditworthiness and ability to repay debts. Credit reports provide a detailed summary of a borrower’s credit information including the following: 1) amount of debt incurred, 2) frequency of inquiries made on his or her report, 3) timeliness of debt repayment (i.e. payment history, 4) balance or outstanding debt, 5) presence of bankruptcy or liens, 6) delinquent payments, 7) available credit, 8) length of credit history, 9) credit utilization, and 10) recent credit applications. The most important factor is payment history, which comprises 35% of the borrower’s credit score.

The maintenance of a positive consumer credit history is a sine qua non to financial stability. Credit scores play a pivotal role not only in loan or credit card approval, but also in the employment and insurance contexts, among other situations. With a high credit or FICO score, borrowers can obtain credit on favorable terms and the lowest interest rates, as well as avoid having to complete a substantial amount of paperwork. A poor credit rating, on the other hand, complicates borrowers’ chances to acquire any type of credit, and the loans that they do manage to qualify for boast an excessively high rate of interest. Lenders, such as credit card companies, are not the sole entities that request and review an applicant’s credit report. Credit scores and records are also sought by employers, landlords, insurance companies, utility companies, and cell phone companies, among others. They utilize the credit score to gauge the applicant’s degree of financial responsibility. The repercussions of bad credit can be witnessed in numerous aspects of borrower’s lives:1: Mortgage. Poor credit adversely impacts a borrower’s ability to obtain a mortgage. 2: Credit card. While borrowers with good credit benefit from a low rate of interest when applying for a credit card, those with poor credit are either disqualified or pay a high interest rate.

3. Insurance. When conducting a background check on a customer, home insurance companies often sound out the latter’s credit score. Both home and auto insurers utilize a prospective policyholder’s credit score in setting the premium. Individuals with a high credit score benefit from low insurance premiums and qualify for discounts. Applicants with poor credit are unlikely to obtain reasonable or attractive rates on insurance products. Generally, they can expect to pay hundreds of dollars more annually in insurance premiums. Furthermore, borrowers with a tarnished credit score may not be covered by underwriting guidelines, and their request for renewal may be denied. Insurance companies usually construct an insurance score by relying on the information in consumers’ credit report.

4. Employment. Prospective employers conduct a credit check prior to making decisions regarding promotion or hiring. Applicants with a poor credit score have a more difficult time qualifying for a promotion or getting hired.

5. Auto or home purchase. To acquire decent rates when buying a car or home, consumers need a good credit score.

6. Consumer credit. Credit history is a significant factor influencing lenders’ decisions to extend credit to prospective borrowers. To assess whether a particular applicant is a responsible candidate for consumer credit, a lender examines the former’s spending patterns and payment history. Defaulting individuals with a poor credit score may be subject to a penalty interest rate ranging from 25 to 30%. Pursuant to a policy known as universal default, borrowers who are delinquent in their payments with respect to one credit card will face higher rates on their other cards. Moreover, their credit rating will fall, which means that they will pay more to secure new credit and loans. Borrowers with a substantial outstanding balance and are in default are charged late fees and face accruing interest, hounding by collection agencies, garnishment of their wages, and/or liens on their assets. For many defaulting or delinquent borrowers, consumer credit counseling is a saving grace. Some of the services offered by organizations specializing in credit counseling include the following:

Proper budgeting Stress management Timely bill payment Debt elimination through low-cost debt management programs Financial management Review of credit reports Elimination or reduction of fees Lower monthly payments to lenders Cessation of calls from collectors

There are many steps that consumers can take to maintain a financially healthy credit score:

Stay current on their payments, for instance, by setting up automatic payments Obtain their credit report from the three consumer reporting agencies and review it for accuracy at least once a year (a corrected report leads to a higher credit score) Maintain credit card balances within 30% of their credit limit Establish a bank account (creditors view savings and checking accounts as proof of stability) Pay more than the minimum amount due