#26 The Value of "Credit"!


To begin with, it’s a complex term!   It means different things to different people.  It is regarded differently in different contexts.    It is often misunderstood concerning its importance in financial situations.   And, to some, it seems to run contrary to popular assumptions about whether or not it’s a good thing to have a lot of Credit and owe any money longer than thirty or sixty days!

Credit is sometimes a puzzling concept to novices in major financial issues – such as applying for a large loan to buy a first house.   It doesn’t seem to make sense that having outstanding debts  (such as credit card balances) is better than working hard to pay everything off before applying for that large loan!   Haven’t most of us been taught to pay off obligations as quickly as possible because it’s not a good thing to owe money?

So why does the advice to “acquire a record of outstanding Credit” seem to fly in the face of dear old Dad’s cautionary advice?

Having Credit in various ways and with varying institutions -- and having an excellent record concerning payment agreements -- is much more important than is often assumed.   A good Credit history is your primary vehicle to show worthiness for a substantial home loan!   You could say that a traceable credit record is your “report card” to the Lender on how you handle debt.

Your Credit Report is almost a living, breathing thing that needs your attention and monitoring!   Understanding how to manage debt is important – and you should be curious about the functional value of your Credit Report as you consider future financial planning.   Becoming familiar with your own credit report and “score” doesn’t need to be intimidating (even if you “never liked math” in school!).  When you run your own check on your Credit Record, you might learn something that would require your immediate attention – such as discovering someone else’s poor information on your report!

There are very specific things that can lower a Credit Score and delay or jeopardize your efforts to qualify for a home loan -- or any other substantial loan.   Chronic late payments, consistently “maxed” credit cards, too many credit inquiries (other than by you), recent demands for collection on closed accounts with whom you arranged a “pay-out” are a few of the most common problems.   Such problems can get in the way of successfully qualifying for a home loan.   

There are other cautions!   Don’t co-sign!   However well intentioned the gesture may be, remember that when you attach your good name (and good Credit Rating) to another person’s financial picture, you inadvertently become part of their profile!   For positive or negative impacts, you are in for their ride.

Incidentally, you are personally entitled to one free Credit Report per bureau, per year, available at:  annualcreditreport.com.   When you search your own report there is no impact on your record of inquiries such as there is when an outside, authorized inquiry is made.  However, to also get your Credit Score, there is a charge.

Don’t overlook the availability of professional help!   Special circumstances can create overload and over-extension in a person’s money management challenges.   Help can get the situation under control, get you on better footing for debt management, and advise you concerning a future goal such as qualifying for a home loan.  Be sure you choose a resource with the correct credentials.   Your prospective home loan Lender can guide you in selecting wisely.

It is well worth the effort to get rid of the Mysteries around your Credit management – and replace it with the Magic

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