What is Credit
Credit is more than just a plastic card you use to buy things—it is your financial trustworthiness. Good credit means that your history of payments, employment and salary make you a good candidate for a loan, and creditors—those who lend money or services—will be more willing to work with you. Having good credit usually translates into lower payments and more ease in borrowing money. Bad credit, however, can be a big problem. It usually results from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to live and, sometimes, a job
Being out on your own can be fun and exciting, but it also means taking on new financial responsibilities. The decisions you make now about how you manage your finances and borrow money will affect you in the future—for better or worse.
Did you know that there are companies that keep track of whether you pay your debts and if you make payments on time? Then these companies make this information available in the form of a credit report and score.
A bad credit history can haunt you for a long time—seven years or more. That’s why the best thing to do is learn how to maintain good credit before there’s a problem. While this might seem complicated at first, it gets easier once you understand the basics of credit and how it works.
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Credit Record
Most creditors use credit scoring to evaluate your credit record. This involves using your credit application and report to get information about you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have and how long you have had them. Potential lenders use your credit score to help predict whether you are a good risk to repay a loan and make payments on time.
Many people just starting out have no credit history and may find it tough to get a loan or credit card, but establishing a good credit history is not as difficult as it seems.
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You might apply for a credit card issued by a local store, because local businesses are more willing to extend credit to someone with no credit history. Once you establish a pattern of making your payments on time, major credit card issuers might be more willing to extend credit to you.
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You might apply for a secured credit card. Basically, this card requires you to put up the money first and then lets you borrow 50 to 100 percent of your account balance.
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You might ask other people who have an established credit history to co-sign on an account. By co-signing, the person is agreeing to pay back the loan if you don’t.
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Improve Your Credit Worth
A lot of people spend more than they can afford and pay less toward their debts than they should. To get control over your finances and to manage your debt, try:
Budgeting—In many cases, people design and then stick to a budget to get their debt under control. A budget is a plan for how much money you have and how much money you spend. Sticking to a realistic budget allows you to pay off your debts and save for the proverbial rainy day.
Credit Counseling—Many universities, military bases, credit unions and housing authorities operate nonprofit financial counseling programs. Some charge a fee for their services. Creditors may be willing to accept reduced payments if you’re working with a reputable program to create a debt repayment plan. When you choose a credit counselor, be sure to ask about fees you will have to pay and what kind of counseling you’ll receive. A credit counseling organization isn’t necessarily legitimate just because it says it’s nonprofit. You may want to check with the Better Business Bureau for any complaints against a counselor or counseling organization. Visit www.bbbonline.org for your local Better Business Bureau’s telephone number.
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© 2008 YourCreditWorth.com
