The Finatical
Week of July 6th, 2022 - Credit Reports, Excess Labor Demand, Inflation and the Job Market
Topic Breakdown - Learn about Credit Reports
Introduction
A credit report is a thorough examination of your credit history provided by a credit bureau. Credit bureaus collect financial information about you and use it to build credit reports, which lenders use together with other facts to establish your creditworthiness. According to usa.gov, “Credit reports list your bill payment history, loans, current debt, and other financial information. They show where you work and live and whether you've been sued, arrested, or filed for bankruptcy.
Purpose of a Credit Report
Credit reports assist lenders (for loans) to determine whether to provide credit or authorize a loan for you. The reports also aid in determining the interest rate you will be charged. Employers, insurers, and landlords may also check your credit record. You won't know which credit report will be used to examine your credit by a creditor or employer. Credit reporting companies (CRAs) gather and store data for your credit reports. Each CRA has its own records and may not have information on all of your accounts. Despite variations in their findings, no agency is more important than the others. And the data that each agency possesses must be correct. It is also important to know that your credit scores are calculated based on the information in your credit report. A credit score is similar to a credit report and serves almost the same purpose. A credit score predicts your likelihood of repaying a loan on time. A scoring model generates a credit score based on information from your credit report. Credit scores are used by businesses to determine whether to lend you a mortgage, credit card, vehicle loan, or other credit services. They are also used to calculate the interest rate and credit limit that you will get on a loan or credit card.
Improving Your Credit Score
So how can you better your credit scores and reports? One of the most essential criteria in calculating your credit scores is your payment history, and having a long history of on-time payments will help you attain good credit scores. To do so, make sure you don't miss any loan or credit card payments by more than 29 days—payments that are more than 30 days late might be reported to credit bureaus and harm your credit ratings. Setting up automated payments for the minimal amount required will help you avoid skipping a payment. It is also important to check your credit reports. It could come as a surprise to you to hear that you have more than one credit score. The most important ones come from 3 credit major bureaus. You should also try to improve your credit utilization. According to Forbes, “After payment history, the next most significant factor in your credit score is the amount of debt. Since credit reporting agencies don’t have your income information, they use a factor called “credit utilization” instead of a debt-to-income ratio. Utilization represents 30% of a FICO credit score. Utilization is the amount of debt outstanding on your revolving credit sources like credit cards or home equity lines in relation to your available credit. Have a $4,000 balance on a credit card with a $10,000 limit? Then you have a 40% utilization ratio. Your utilization matters both overall and per credit source. It is commonly recommended to keep your credit utilization below 30%. But those with the highest scores typically have a 10% or less utilization rate.” Now that you understand credit reports and how to improve them, you could have access to better loan amounts and interest rates!
Financial Trends
Excess Labor Demand’s Impact on the Economy
When the coronavirus pandemic had begun, the labor market was struggling to find jobs and there were just not enough laborers in various industries. However, as businesses and companies were able to deal with the pandemic, the labor market has undergone a tremendous recovery and is earning up to $15 to $21 in minimum wages. Unemployment levels are continuing to decrease, however, there can be too much of a good thing. This is happening with the excess demand for labor workers. Companies started to hire a lot more labor workers, in the past year, because of their rapid growth during the pandemic, causing unemployment rates to decrease. Although companies are no longer growing at that rate, they still need labor workers to run their companies. This has led to them paying higher wages to retain the workers that they have, causing higher inflation.
This has caused the number of job vacancies to increase, along with labor workers continuing to quit their jobs at historic high rates. The Federal Reserve Chairman, Jerome Powell, has said, “The labor market is tight to an unhealthy level”. This statement from Powell is an indication for the labor market to start reacting and finding a solution to the issue as the Fed is looking to put an end to the low-interest rates. The Fed is foreseeing a major decline in the labor market before interest rates are normal, which is going to occur at the end of this year or at the start of 2023.
Inflation’s Connection With The Job Market
The biggest issue that the U.S. is dealing with is inflation. In fact, the Federal Reserve Chairman, Jerome Powell, has said, “There is no guarantee that the central bank will be able to control inflation without hurting the job market”. Powell repeatedly mentions that the only way that the Fed can control inflation is by raising interest rates just high enough so that it slows down the economy and eliminates any chances of recession, at the cost of rising unemployment levels. He also mentions that the task of controlling inflation has become more difficult as time goes on because Russia's invasion of Ukraine has caused the prices of food, energy, and chemicals to drastically increase.
The ECB (European Central Bank) and the Fed were unable to detect the inflation threat that started over a year ago because neither of them recognized the importance of energy shocks. It has been affecting the majority of the world because of its reliance on Russian oil and natural gas. ECB’s President, Christine Lagarde, said, “Energy was vastly underestimated in the bank’s assessment of inflation”. The ECB and Fed both believed that the rising prices were just the outcome of the temporary supply chain issues, but as those issues remained and increased, inflation continued to increase rapidly. Hence, economists are worried that the implementation of higher interest rates could result in the economy undergoing a recession but Powell remains confident that the U.S. economy is well-positioned to withstand stricter monetary policies.
Financial Guidance
“It’s better to look ahead and prepare than to look back and regret.” ― Jackie Joyner-Kersee
Being overprepared will not hurt you; in fact, it will do the opposite, as you will be prepared for most, if not every possible contingency. On the contrary, being underprepared will hurt you significantly, as it can lead to the collapse of everything you’ve worked for up until that point.
Money Fact
It is estimated that approximately $1.7 trillion USD is currently in circulation as currency. In comparison, the total student debt in the United States is around $1.3 trillion.