Credit Rating
The decisions you make now about how you
manage your finances and handle money and
credit can affect your ability to borrow money
in the future, as well as the cost of borrowing
that money.
They also can affect your ability
to rent or buy a place to live, get auto or life
insurance, or even get a job. The more you
know about credit, the better prepared you
will be to manage your finances and establish
a solid financial foundation.
When you get credit, you are borrowing
money from a lender, and you have to pay
back that money — usually with interest. You
can get credit in many different ways: through
a credit card, a personal loan, an educational
loan, an automobile loan, or a home mortgage.
It’s important to maintain a good credit
record because it can affect how much you
pay to borrow money. If you have a good record,
it means that you are a good candidate
for a loan — based on your history of paying
bills, your job history, and your salary — and
it will be easier for you to get loans at lower
interest rates. That usually translates into
lower monthly payments.
If you have a poor credit history, however, it
can be a big problem.
A poor credit history
usually results from making payments late or
borrowing too much money, and it can mean
two things:
1) that you might have trouble
getting a
- car loan, a credit card,
- a place to live and, sometimes,
- a job or
2) that you will pay a lot to get the loans you need.
Establishing Credit
Suppose you never financed a car, a computer,
or some other major purchase. How do
you begin to establish credit?
• Consider applying for a secured credit card.
It requires you to open and maintain a bank
account or other account at a financial
institution as security for your line of
credit. Your credit line will be a percentage
of your deposit, typically from 50 to 100
percent. Application and processing fees
are common for secured credit cards. In
addition, secured credit cards usually carry
higher interest rates than traditional nonsecured
cards.
• You might apply for a credit card issued
by a local store; local businesses often are
more willing than national chains to extend
credit to someone with no credit history.
Once you establish a pattern of paying
these bills on time, major creditors might
be more willing to extend credit to you.
• Consider asking someone with an
established credit history — perhaps a
relative — to co-sign the account if you don’t
qualify for credit on your own. The co-signer
promises to pay your debts if you don’t.
You’ll want to repay any debt promptly so
you can build a credit history and apply for
credit in the future on your own.
• If your application for credit is turned down,the creditor must tell you why.
It may be that you haven’t been at your current address or
job long enough. Or your income may not be
high enough. Different credit card companies
have different standards. But if several
companies turn you down, it may indicate
that you are not ready for the responsibilities
that come with getting credit.
