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Basic Information On Consumer Credit

Author : Ask Bill

Consumer credit refers to credit in some form given to the consumers. It may be described as a way of financing a client on condition of a deferred payment, at a later date or within a particular period of time. The enterprises that may give consumer credit facilities may have to have a valid consumer credit license from the Office of Fair Trading (OFT). It may be considered as a mark of assurance to the customer that the business firm certified by OFT may be fit for serving the customers. The businesses that sell on credit usually would lease out or hire goods for over a period of 3 months, lend dollars, may be involved in credit card selling, probably arrange credit for others, provide hire/purchase commodities, collect debts and may give advice on others’ credit standing that may have come under the purview of a consumer credit license. To trade without a consumer credit license when one would be required would be a crime that might invite fine or prison term or both.

A Consumer credit license may be valid for a fixed time period (5 years or so) and the business would have to renew it after its expiry. However, the OFT can revoke, suspend or change the license at any point of time. The decision to do so would be at the exclusive discretion of the authority. All the consumer credit license holders might be listed in the Consumer Credit Register, which might be available free of cost to the public. Availability of consumer credit fluctuates, depending on economic pressures. Credit may often be readily available during good economic times and consumers can potentially find themselves deep in consumer debt if they take advantage of all the credit available to them. In periods of economic downturn, credit markets tend to tighten as financial institutions might be risk-averse, and it may be difficult to obtain credit for personal purchases.

Credit monitoring hence becomes very necessary so as to not get deep into credit that may adversely affect one’s credit rating. Credit monitoring may be defined as a financial service offered to people who may be concerned about fraud and identity theft. When someone utilizes credit monitoring, an agency would keep an eye on that person's credit report and financial activities, looking for signs that unauthorized activity may be occurring. In other words, credit monitoring could be considered as checking one’s credit score every six months instead of once or twice a year. The services offered by credit monitoring agencies can vary. Some agencies simply keep an eye on the person's credit report, looking for tell-tale changes like the presence of new accounts, or an emergence of unusual spending habits. Other services may cross reference, looking for all data linked with a person's name or identity number so that fraudulent accounts are identified even when they do not show up in a credit report. Banks often offer credit monitoring, usually for a fee, although sometimes credit monitoring may be free with premium accounts. It would also be possible to secure the services of a credit monitoring agency independently. Identity fraud prevention and protection tends to offer more coverage than a basic credit monitoring plan, since it involves the active pursuit of prevention of identity theft, rather than just passive monitoring of credit reports.

Credit score would be a useful tool in determining one’s credit worthiness. An algorithm known as Fair Isaac and Corporation algorithm or FICO may be used to calculate an individual’s credit score. Credit score would be calculated using a statistical algorithm by three separate credit bureaus which are Experian, TransUnion and Equifax. So, every US citizen would have three parallel credit scores that may differ slightly according to source. The calculation may be based on credit usage data concerning an individual that may be submitted by financial institutions as a credit report. An individual’s credit repayment history, money owed and length of credit history are some of the prime factors that decide the credit score value. So an average of the credit scores of all the three agencies might be considered as one’s average credit score. A credit score would play an important part when an individual would want to avail credit. Usually, a credit score of above 500 would be viewed favorably.

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Tags:   consumer credit, credit monitoring, credit score

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Submitted : 2010-10-08    Word Count : 722    Times Viewed: 399