Credit Card Guide

What is a Credit Counseling?

22 February 2011 by CreditCardsCo™

The term "financially satisfied" applies to a very small percentile of the population in the United States. While people are making money, not all of them have attained a level of financial well being. Credit counseling is a process that allows people to understand and develop a healthy relationship with the financial aspects of their life.

All financial counseling has two dimensions to it — one is concerned with balancing income and expenses and the other explores the emotional/ behavioral aspect of how money affects the person. Addressing both these aspects is essential to have a healthy financial base to build on. The attitudes that people have towards money are as important as the figures in their bank accounts.

The Facts about Credit Counseling

Credit counseling is not therapy. It is an intervention. Everybody uses and leverages the power of credit to get what they want — whether it is a bigger house, a better automobile, or more privileges. Understanding how credit works is the first step of recognition that credit counseling is more of a scientific problem solving approach rather than a healing process.

Getting to Understand Credit

There are four types of credit and each of them is essential to developing a healthy financial life. Secured Credit is any loan backed by collateral — mortgages and auto loans are prime examples. Unsecured Credit is not backed by anything and therefore of higher risk to the lender. Credit card are a good example of unsecured credit.

Installment credit is usually paid off in installments over a period of time. This type of credit can be secured or unsecured. Non-installment credit is any loan that is to be repaid in one payment by a specified date. Getting to understand each of them is the first step in the process of credit counseling.

How to Use Credit Wisely

Credit is about convenience and flexibility. It is about expanding the buying power of the consumers who know how to use it to their advantage. This aspect of credit is about gaining insight into how the process works.

The real power of credit is in knowing that credit is essentially an opportunity to build better credit over time. Better mortgage rates, better insurance, easier car loans all depend on how a person has used credit in the past. By using credit wisely today, you can build your road to higher levels of financial freedom. A few pointers when it comes to the wise ways of credit:

  • Never take cash advances on credit cards
  • Always pay credit card bills on time and always make more than minimum payments
  • Check the credit report once a year, every year

By better understanding how credit works, the credit counseling process facilitates good credit habits.

Understanding Credit Reports

The credit report is not a comprehensive picture about the credit habits of the consumer. The reason for this is that the three credit reporting agencies do not get their information from the same subscribers. Many creditors do not report consumer activity on a regular basis.

In fact, some of them only report negative activity. While this may be unfair to the consumers, it is important to get the ability to know what a credit report says and if there is any error in the report, how to get it fixed. Credit counseling offers all this information and more.

Credit Scores and the Big Picture

Think of the credit score as a snapshot of the current risk of a consumer at that particular point in time. Imagine that this snapshot is taken every time the credit worthiness of person is questioned.

It is a number that helps lenders decide how likely he or she will get paid back on time if credit is extended to that particular customer. It is important to note that credit worthiness and credit report can be improved on over time. Understanding this aspect of credit is one of the biggest and most effective ways of using credit to your advantage.

The credit counseling process educates people about credit - one of the most important things to be learned in today's times.

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