FAQS

Good to Know

WHAT IS CREDIT MONITORING?

Credit monitoring refers to a tool that alerts you of changes in your credit report and credit scores. It’s a great tool if you want to work on your credit and financial health because it allows you to watch your progress and adjust your behavior to reach your credit goals. When you monitor your credit report, you can more effectively avoid obstacles that can stand in your way of borrowing in the future.

WHY IS CREDIT MONITORING IMPORTANT?

Here are the reasons why it’s important to monitor your credit report and credit scores.

Identity Theft Protection

When it comes to identity theft protection, credit monitoring allows you to spot signs that your information is being used fraudulently. According to the AARP, one in four people has reported being a victim of identity theft. With credit monitoring, you have the advantage of acting quickly before identity theft becomes financially damaging.

Financial Planning

If you’re not planning and managing your finances in advance, it can make things difficult in the long run. Credit monitoring shows you how you’re performing in the categories that affect your credit score. Things like your payment history, credit utilization, types of accounts, and other important factors, can show you need to adjust to achieve your credit goals. The better your score, the more financial opportunities you can have for securing a good deal on a mortgage, auto loan, credit card or other resources.

WHAT DOES CREDIT MONITORING DO?

To understand how credit monitoring works, it’s important to understand what a credit report is. A credit report consists of the data collected about you by a credit reporting agency. It holds information about how you have managed debt and contains your identification data, including your full name, bank accounts and credit lines opened, missed payments, loans, address, SSNs and other identifiable information tied to you.

The United States has three major credit reporting agencies, and each maintains credit files of American consumers.

Here are the activities that might trigger credit monitoring alerts:

Hard inquiries on credit reports, which can occur when financial institutions run credit checks after someone submits loan or credit card applications
New accounts open in your name and added to your credit reports, including credit cards and loans
Payments and balances on your credit products that you didn’t actually make
Name changes or new addresses added to your credit file
New public records, such as information on court judgments and bankruptcies.

NO CREDIT OR BAD CREDIT – WHAT’S THE DIFFERENCE?

Having no credit and bad credit often get grouped together, but the two situations aren’t the same.

And understanding the difference between the two is a key step toward reaching your credit goals. Knowing the right way to positively impact your credit often depends on whether you have no credit history or bad credit.

Having no credit means that there’s simply not enough information on your credit file to calculate an accurate credit score for you. That means when you apply for a credit card, a mortgage, a car loan or sometimes even an apartment lease, your potential lender won’t find any results when they check your credit report. It’s also known as being credit invisible. This can limit the financial products you qualify for and may make some financial milestones, such as buying a house, difficult to achieve.

Bad credit on the other hand refers to a low credit score. That low score is because of negative items on your credit file, such as not paying your credit card bill. A bad credit score can make it difficult for you to qualify for a loan. If your score is too low, this increases the chances of having your loan denied. And even if a lender approves your loan, you may likely be charged a higher interest rate.

When you have no credit, the solution is to take actions to help establish your credit. When you have a low credit score, the solution is to take actions to repair your credit scores.

WHAT ARE THE THREE MAJOR CREDIT BUREAUS?

A credit bureau is an agency that gathers data about your finances, business, income, banking status, debts, etc., to find out your financial credibility. A credit bureau may collect this data from the taxes you pay, the property you purchase the bank whose services you use, and so on. Credit bureaus have quite a few roles to play in the finances and investments sector.
A credit bureau calculates your creditworthiness and builds your credit reports based on how well you handle your credit. Whether you shut down your business or have hospital bills way beyond your budget, a credit bureau can examine every aspect of your personal and professional finances. Credit bureaus also keep a keen eye on how well you handle or struggle with your credit challenges.
The United States has several big and small credit bureau institutions. Here are the three major credit bureaus – Experian®, Equifax® and TransUnion®. They have similar purposes, but their strategies differ based on what lenders require from them.
The credit bureaus offer FICO®Scores that range from 300, the lowest credit score, to 850, the highest credit score.

I WANT TO INVEST IN REAL ESTATE, AND I NEED A LOAN, WHAT IS SOMETHING I SHOULD CONSIDER?

If you’re thinking of getting a mortgage, car loan, credit card or another line of credit, you may have stumbled upon the term debt-to-income ratio, or DTI. DTI plays a significant role in determining whether you are going to be pre-approved for a loan or not. It’s an important ratio that shows lenders how your debt stacks up against your monthly income.

WHAT IS DEBT-TO-INCOME RATIO?
In simple terms, your debt-to-income, or DTI, ratio is the percentage of your monthly gross income that goes into settling your monthly debt payment. Banks, credit unions and other financial institutions use DTI to determine your ability to repay a loan.

Lenders prefer a low DTI ratio because it demonstrates that a borrower has a good balance between their income and debt. So, if you have a DTI ratio of 15%, it means that 15% of your monthly gross income covers your debts every month.

On the other hand, a higher DTI ratio means that a borrower’s monthly income might not be enough to settle their monthly debts.

A lower DTI ratio indicates you can probably pay your monthly debts with ease. Therefore, you won’t have trouble accessing new loans from banks, credit companies, and credit unions.

However, keep in mind the maximum DTI ratio varies depending on the lenders. While it’s true that a low DTI can help your chances of getting approved for a loan, there are personal loan providers that allow higher DTIs.