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Establishing A Good Credit History
Takes Planning and Discipline |
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We often hear complaints from people who are upset because they were not approved for credit. They believe that credit is something they are entitled to whenever they want it. The truth is, credit is a privilege and a convenience, available only to those who have proved their ability to pay.
Establishing a good credit record can sometimes take a few years, because you have to demonstrate repeatedly that you are able to make your payments.
Put yourself in the lender’s position. If someone wanted to borrow money from you, and you knew that this person had a habit of borrowing money and not paying it back on time, would you do it? Chances are, you wouldn’t.
Lenders are in the same position. People ask them for money every day and with each application they have to predict whether they will be repaid or not. They base that prediction on several factors, including the applicant’s past credit history.
The creditor also checks how much of your monthly income is left after you pay your current expenses. If you are paying on several loans already and have a high rent or mortgage payment, your application may be declined.
A good place to start building a solid credit rating is at the beginning. If you’re a young adult in your first job, start small by opening a bank account, then use it to secure a small loan. Also, many department stores issue credit cards and have less strict qualifying standards.
The most important thing to remember when starting your credit history is that you must always make the payments on time. Not only will you escape the costly late fees, you will also avoid having the brand “slow pay” stamped on your credit report.
Even if you have a good credit history, you may be turned down. If you have only been at your current job or address for a short time, it could be a factor. Perhaps your credit file has errors, in which case you should check with the credit reporting bureau. Also, different institutions have different rules and some creditors have unusually strict lending standards.
All of this information comes with a warning, however, which is that borrowing money can be addictive. Some people, especially young adults, get their hands on a credit card and see it as free money. In fact, it’s just the opposite. The $20 you spend on a credit card to go out to dinner with friends often ends up costing $30 or $40 once finance costs are added.
Remember, credit is not additional income. It may let you enjoy now, but you have to pay later. Keep your payments current and on time, and always have a clear understanding of what your total debt is, not just the minimum monthly payments.
Also, if you should find yourself unable to make the payment, contact the creditor and let them know what is going on. People are often surprised how much creditors are willing to help if they feel that you are sincerely attempting to repay your obligation.
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