Defining Credit

Newsletter 12/31/2022

We are taking from our own writings to provide you with all of the information you will need to know about your credit, to build your credit, or even repair your credit. We are offering this information to you for free via corrlinks. We are working on adding all of this information on our website as well. You do not need us or anyone else to fix your credit, you can do it for free on your own. If, however, you simply don't want to do it, then you can hire us to fix it for you. We only take on a limited amount of new clients for this service at a time. The reason for this is that we provide you the service for 6 months minimum, and offer additional consultations to ensure that you understand every step. We anticipate having new openings at the beginning of the year (i.e., 2023). If you are interested send us a message for additional information. We charge $300 for the entire 6 months, which is a very competitive pricing. Our competitors charge $99 per month with a minimum of 6 months.

The following was written by R. Brown A.K.A. Hamzah and M. Freeman A.K.A. Mika'eel (2022)

Chapter 1: Defining Credit

Some questions that we must all consider is: (1) what exactly is credit?, (2) Why is it important?, and (3) Why do I need to worry about it? In this chapter these three questions are what we will discuss. As time passes by, we can see that credit plays more of a major role and has a growing effect on our daily decisions. It is our credit that will determine our credit score, and our credit score is what determines how much we will pay for our mortgages, rent, car insurance, life insurance, furniture, or simply to obtain credit for anything else. Even some employers are looking at credit scores to determine if they want to hire us. More and more companies are using algorithms to attempt to discern what our risk is in paying back what we owe or for filing a claim with an insurance company. In basic terms, the lower our credit score the higher we will pay, and the higher our credit score the less we will pay.

The first question we are considering is what exactly is credit? Credit is "the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future."

The second question we are considering is why is credit important? There are two main reason why credit is important: (1) Sometimes life just happens and we do not have the funds to pay for what we really need. Maybe we need to fix our roof, or something went wrong with our vehicle, but the funds are not available. What do we do then? One quick way is to ask for credit. When we buy things online or go to a check out lane at one of the many merchants, we are often offered the option to pay the traditional way or apply for a form of credit (a retail or bank credit card). (2) Many successful individuals and entities have found that it takes knowledge of credit to really become rich. We will discuss this later when we discuss personal credit and business credit.

It is really easy to apply for credit and often times small deals are offered to get you to apply. For example, getting a special 20% discount or $25 off, or things like this. We then apply for credit based on impulse rather then thinking about the effect that it has on us in the long run. We will get into this more later on. Credit is not used as an account, but we too often use it frivolously because we don't actually see the money. It is easy to swipe a card or hit a key on the key board compared to taking out money from our wallets or purses. When we see our cash flow getting smaller we make different decisions, but we lose this ability when we use any form of credit. Even though we avoid the pain of seeing our money disappear we ignore the long term affects of growing debt.

While we are discussing credit it is a good idea to talk about the different forms of credit. These are used for personal credit and for business credit. Although when it comes to business credit things will change a little. So we are devoting a section just for business credit later on. The main forms of credit are:

* Credit Cards

* Mortgages

* Auto Loans

* Lines of Credit

* Bank Loans

* Leases

Each one of the forms of credit above will fall into one of three different categories: revolving credit, installment accounts or open accounts. You can see these categories in your credit report.

Revolving accounts are credit lines that have different payment amounts each month. The amount owed will depend on how much you use that particular account. These accounts are subject to a minimum amount that is due that the creditor will calculate. It is fair to assume that 2% for that month will be a good way to budget for this cost. This does not mean this will be your monthly minimum, but a safe budgeting number. So lets say that you owe $500 for the month, it is safe to assume that your minimum will be around $10. However, keep in mind that most creditors have a minimum of $25. If you only pay the minimum then you can push off the rest of what you owe for the next month. The most common forms of revolving accounts are credit cards. Home equity lines of credit also fall under the umbrella of revolving accounts.

Installment accounts have a fixed amount that is due every month. The amount is determined by your initial loan amount and is divided by the number of months you are taking the loan out for plus interest. Installment loans are any loans on your credit report such as student loans, car loans, business loans, and mortgages.

Open accounts require the full amount to be paid in full every month. It is not like a revolving account where you can choose to pay a certain amount and push the rest to the following months. Open accounts normally do not have any interest charged like charge cards like American Express, cell phone accounts, cable and internet accounts, and home utilities. These type of accounts are not always reported to your credit report because you pay the full amount off every month. Unless you miss payments then they will report it to the credit bureau. However, Experian is one credit bureau that has created what is called "Experian Boost" which allows you to receive a credit boost based on you making these payments each month.

Now we need to consider why do we need to worry about our credit. Almost everything that we do will affect our credit score, and this is very important that we understand this concept. It is not just ignoring the fact and saying "yeah I have bad credit, so what?" As someone who worked in the insurance industry I learned from first hand knowledge how much it really affects us. The law requires us to have car insurance for example, but if we have bad credit then Insurance Agencies perceive us as being a high risk of filing a claim. This perception of high risk causes us to pay a higher premium. The vast majority of us are not rolling in the funds, nor do we have a money tree somewhere. So we have to cut costs whenever possible.

Where we live also affects how much we will pay for our insurance premiums. Lets take an example of an individual who has bad credit (or no credit), and has a less than average job paying about $35,000 per year. This person lives in the hood where generally the costs are cheaper. The law requires this person to have insurance, but the insurance agency perceives this as a double threat. The area is high risk for a claim being filed, and the insured is high risk of filing the claim (rather than just paying it solo) because they have a low credit score. Their premium may be in the thousands compared to someone who does not live in the hood, and has a good credit score.

The person who lives in the hood wants to move out and into a better area, but what do they need? They either need money, or they need credit to make the move. Meaning that they have a less than average paying job they cannot afford to move outright, they need the assistance of credit. They also have bad credit or no credit, so creditors don't want to take the chance, and for those creditors who are willing to take the chance the premiums are extremely high. This places this person at high risk of losing everything they worked for later on. This is exactly what we want to avoid.

We believe that every person deserves the same fair chance as the next person. In our world, that will never take place, so we want to bring it as close to as fair as possible. By providing you with all of this information for free, you will have the ability to change your world in a positive way. We are not teaching you this for you to use it in any illegal manner, because we can tell you that the federal government is not playing any games. The penalties are getting stiffer and stiffer if you are not one of them.

There are both good things and bad things that will impact your credit score. As we write this book, we are writing from experience. Hamzah grew up in the hood and Mika'eel grew up on both sides of the fence. For all sense and purposes Hamzah and Mika'eel lived two different life styles, but at the core like the rest of us, they have many similarities. One lived the streets, the other visited the streets, but had the option to leave when ever he wanted. These two men came together and decided that they wanted to take their experiences, and their knowledge...combine it together, and provide you with everything that you need. The major things that affect your credit score are: (1) Paying Bills; (2) Applying for credit; (3) Credit Cards; (4) Bankruptcy; and (5) Foreclosure. We will discus each one in turn.

Paying bills is something that everyone has to do, and is the easiest thing that you can do in order to protect your credit. Sometimes that is easier said then done. What if you ran into a hardship and there is no money? Sometimes our children need things, and sometimes we just want to provide our children with things that we never had. In these cases, it is at times the hardest thing to do, paying bills when you have other priorities. At times we just want to put off this bill or that bill until later. We tell ourselves that we have another pay check coming, or another job, or we will win this ticket we placed on sports, or we calculate how we will earn additional income. All of this is great, but that is counting our chickens before the hatch, and most of the times this type of thinking turns out to be a disaster.

When our bills go one month, two months, or three months overdue, our credit score can fall as much as 50 to 100 points. This is considered a massive drop and is not a good situation to be put in. When this happens other creditors that we have credit cards through can just drop us, because we pose too high of a risk. This is especially so if we do not currently owe them any money. If we do owe them some money then this is less likely, but this is not a reason to keep open debt. When we drop by this much we essentially have to start all over again. It is much easier to destroy our credit then it is to build it up. Once you miss several payments your account will then be considered delinquent and this means that you will have to reestablish payment history on that account. This means another 2 years or more of never missing a payment to get back to the next to bottom grade in this area (i.e., payment history). Until then it will continue to negatively impact your credit score.

As we were discussing earlier it is really easy to apply for credit, and whether we are approved or denied it does not seem like it matters much. However, ever time we apply for credit in any form it affects our credit score. When we apply for a lot of credit (i.e., several different credit cards or lines of credit) in a short period of time we are perceived as high risk to creditors. They view us as compulsive borrowers, or that we are living on credit. They see us as basically robbing Peter to pay Paul, and soon we will go bottoms up and they will not get their money back. We know that this is not always true, but to be honest it happens more times then not.

These applications for credit will also trigger the number of credit inquiries on your credit report to go up. The categories are different for each creditor and bureau, but its safe to see it as being 1-2 inquiries is average, 3-4 is below average, 5 is alarming, and 6 or more is extremely high risk. Credit inquiries stay on your credit report for 2 years, but they lose some of its impact after 1 year.