Personal finance is a complicated and serious issue. In order to live the life that they want to live, almost everyone at some point must seek financing of some sort, usually for a home or a car. Big purchases require a credit history and the more superior the credit history is, the better the terms of the loan or credit line will be.
Getting financed in today’s economy isn’t always easy. With the strains on families during the recent economic downturn, many people have found that they are struggling to find financing that works for them. One thing to remember is that “bad” is relative and that there are options out there for most people who are in need of financing for a car loan, mortgage or credit card. Even more good news is that as the economy improves, more and more lenders are willing to work with all kinds of credit. While people with low credit scores or poor credit history can often find some sort of financing, the terms of that financing might not be favorable. They can often find themselves facing high interest rates or heavy penalties. It is tempting for many individuals to jump at financing offers in order to meet their material ends, but this isn’t always wise and can in the end cause them more financial difficulty, as the less than favorable terms could cause them significant and unexpected costs in the future.
Building good credit isn’t a mysterious process. There are three main factors that create a credit score – payment history, debt to income ratio, and length of credit history. Payment history is simply an individual’s history of paying their bills, and whether those accounts ever went into collection. Even late payments can negatively impact credit. Debt to income ratio is how much current credit is available to the individual and how much of they’ve used, in addition to factoring in whether their current income can support their debt and available credit. Finally length of credit history is exactly what it sounds like – how long an has individual been paying bills. Even if the credit history his perfect, if it’s short then potential creditors will be wary.
Patience is the hardest part for most people who want to improve their credit. It requires discipline and often self sacrifice in order to build positive credit. Lending institutions are in the business of trusting individuals with their money, and of course want to be as certain as possible that their investment will be returned. Credit scores are a way for lenders to easily gauge whether a person has proved their ability to return payment as promised. Building credit is a worthwhile pursuit, and those who are diligent find great rewards in improved credit terms and money saved.