Establishing Credit : What You Need To Know Part 1


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 consumer’s 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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