Credit

A basic tenet of business is that a seller has the right to extend credit to a buyer on whatever terms are agreeable to both parties. For all practical purposes, the buyer and the seller agree upon a price and the time frame in which the buyer will pay for the item after the buyer takes delivery of it. This transaction depends on a level of trust between the buyer and the seller and is a direct reflection of the trustworthiness of the buyer, since the buyer is basically paying for the item with only a promise when the buyer takes delivery of the item. Personal honor plays a major role in credit purchases because the buyer is capable of essentially stealing the merchandise by receiving it and then not paying for it. Although it is a rare occurrence, dishonest sellers can also abuse a credit relationship by manipulating the terms of a credit contract to limit the rights of the buyer (borrower) and / or deny that the buyer has paid, or paid properly, and invoke the penalties of the contract against the buyer (usually forfeiture of the merchandise and any payments made toward the purchase of the merchandise). It is this lack of safety in credit assisted purchases that makes alternatives like lay-away more attractive. On the other hand, when both parties act in good faith, A credit assisted purchase ensures fairly prompt delivery of merchandise to the buyer and assures a greater likelihood of profit to the seller who may not otherwise be able to sell the item to the buyer.

Can you think of what it would be like if you could only buy new cars with cash or on lay away? The economy would fall apart. Few people could afford to buy new cars, regardless of their income, factories would stop making new cars, people would lose jobs and the industrial world would fall apart. The less a society has credit; the more it resembles a stone age society. The main difference between developed nations and backward nations is the lack of an equitable system of credit in the backward nations.

Our modern society has many institutionalized and highly developed ways of handling credit. All of these are very important to the survivor who needs to get an arsenal together but, like most of us, does not have the money to do it all at once, or who desires to obtain big ticket items that one could simply not afford to buy all at once. There have been volumes published on the subject and I cannot hope to offer an adequate alternative to them in this short section, but I will offer a short overview of the types of credit that are available.

Applying for a Loan?--Start by Ordering Your Credit Report

If you are considering applying for a loan, ordering a copy of your credit report may well be the best place to start. Why? Because it’s also the first thing a potential creditor will be looking at, and even if you pay your bills on time, you will want to ensure that all the information in your credit file is up-to-date and accurate.

Studies have shown that many credit files contain inaccuracies that could affect your credit rating, and even lead to the rejection of a loan application. That’s why reviewing your credit report beforehand may be a good idea, giving you time to dispute any items that may be the result of simple human error or a technical glitch.

And depending on whether you are applying for an auto loan, a mortgage loan, or a loan for business or personal use, different lenders may apply different standards in rating your credit worthiness. For this reason, reading your credit report and understanding how your credit data might be interpreted may give you a chance to improve your credit worthiness from the point of view of a lender. If you would like to get a free copy of your credit report right now, click here.

Before you begin the application process, check your credit report for the following items:

Clerical Inaccuracies

Sometimes credit reports contain inaccuracies that are the result of a computer glitch or a clerical error. These may include payments not credited, late payments, or data mixed in from a credit file of someone with a name similar to yours. Ordering your credit report will quickly show you what the lender will see--then it’s up to you to dispute any information that you consider inaccurate. If you would like to get a free copy of your credit report right now, click here.

Excess Unused Credit

To make your credit more attractive to a potential lender, you may wish to consider reducing the number of revolving charge accounts that are listed as active on your credit report. Lenders will sometimes view too much revolving debt as a negative when considering a loan application.

In situations where you have stopped using a credit account, it is often a good idea to close the account if you don’t plan to use it anymore. Make sure your creditor notates the account “closed at consumer’s request”--otherwise, a prospective lender might assume the creditor closed the account for other reasons.

A few credit cards managed well may improve your chances for a loan--particularly a mortgage loan, where lenders use stricter qualifying guidelines. Another rule of thumb is to keep balances on credit cards around 75% of the available credit limit. Ironically, credit cards that have lots of room on them may be viewed as potential debt, while maxed-out cards make you a less desirable credit risk--both of these situations could compromise your ability to obtain a loan.

If you would like to get a free copy of your credit report right now, click here.

30-day and 60-day Late Payments

Even if your credit report contains a couple of 30-day late payment entries that are accurate, many lenders will overlook the occasional late payment if you explain the situation and your credit is otherwise good. Try to avoid any payment being 60 days late however, as this may be a red flag for some lenders--even if they do grant you the loan, it may come at a higher rate of interest and with less favorable terms.

The primary period lenders are interested in on a credit report is the last two years, so try to maintain on time payments, and verify that the payments are being credited properly by checking your credit report regularly. If you would like to get a free copy of your credit report right now, click here.

Avoid Unnecessary Inquiries

Each time a prospective creditor looks at your credit report, an inquiry notation is added to your file, and most inquiries stay on your credit report for up to two years. Inquiries you make yourself, inquiries made during screening for a pre-approved offer of credit, or an inquiry that is part of a background check for employment purposes are not reported to potential credit grantors.)

It is best to avoid over-applying for credit and running up excessive inquiries, for the simple reason that lenders of creditors may think you’re trying to get credit due to financial difficulty, or taking on more debt than you can repay.

Lenders do of course realize that some inquiries are a result of shopping around for the best rates on a loan, and so they will often overlook a block of inquiries within a very recent period. It may help if you explain the inquiries in the application process. If you would like to get a free copy of your credit report right now, click here.

Understanding how your credit report affects your financial future is the key to smart credit management. Incorporating a review of your credit report into your financial planning is also one of the best ways to make sure you meet your goals--especially when those goals involve major purchases, and you’re shopping for a loan with the most favorable terms possible. So get a free copy of your credit report right now, by clicking here.

 

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Information provided by iPlace.com is for informational purposes only and is not a substitute for professional financial or credit advice.