#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.
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