Establishing Credit What
You Need To Know Part 1 |
By Tim Gorman |
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Establishing credit is one of the most important things you can do
in order to add stability to your financial record and
dramatically increase your ability to borrow necessary funds in
order to purchase a new home, new car or even pay for college
expenses. Unfortunately credit has two sides to it that
consumers can exploit. The good side is very valuable and
prevents consumers from having to save for many years in order
to afford the finer things in life. The bad or dark side of
credit can lead to individuals amassing large amounts of debt
they eventually find themselves unable to repay. With this in
mind one of the best investments anyone can give himself or
herself is the financial knowledge necessary to handle and
ultimately use credit wisely.
Before you can begin to
establish your credit record you will need to find a lender that
will loan you the necessary funds in order to start your credit
history. The rates that lenders charge varies depending on the
consumer they are loaning funds to but they all look at various
types of information in order to initially determine the credit
risk or liability an individual may present when looking to
obtain funds. This information will include a consumers ability
to take on additional debt, which is easily obtained based on
current expenses (such as rent, food, utilities etc) subtracted
from current income. The result is the amount of additional
expense that a consumer can comfortably handle without problems
of repayment. Lenders like consumers that own assets such as
stocks, bonds, insurance, bank accounts, rental homes and cars.
A lender may view these assets as collateral against any amount
borrowed.
Perhaps you already have a small amount of
credit history already on record, if so this can help in the
loan approval process. If a consumer has already borrowed money
before and paid that loan back in full without any types of
problems or late payments then a credit history has already been
started. Additionally if that same individual has or uses a
credit card wisely it can also help in projecting an image of
being creditworthy. A lender can use this information to
determine the amount of debt a consumer may already have, how
many credit cards they have, and whether they make payments on
time, which helps the lender make a determination if that
consumer can be trusted to handle the repayment responsibility
of additional credit.
If a consumer already has some
amount of credit history built it then it becomes easier to
qualify for additional credit in order to increase and improve
their current credit history. Unfortunately for the individuals
that have never used credit before establishing a good credit
history can be difficult. This includes people who always pay in
cash, work out of their home or perhaps just started working.
Part two of this article provides information on what they need
to do in order to establish credit. |
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