Expand Your Credit

For some people credit and what it means can seem confusing and obscure. What everyone does know is that having good credit is crucial, so here are some clarifications on this important issue.

When discussing credit it is important to understand that those convenient little plastic rectangular cards are not a substitute for cash. Not at all. Charges put on credit cards should better be thought of as loans which you are taking against future income. The only reason a store or a bank will let you borrow money from them when you use a credit card is if they believe you are going to pay them back. This is called financial trustworthiness, and it can determine whether you can get a credit card and can often determine the amount of interest you must pay. Your level of financial trustworthiness is determined most often by your credit history; how you’ve paid your loans back in the past.

Having a good credit history can determine more than just whether or not you can get a credit card. Before you can purchase a home, which usually involves a large amount of debt, called a mortgage, lenders will examine your credit history to determine your financial trustworthiness. If they have any doubts about your ability or determination to continue to pay back their loan month after month, they might refuse to finance the purchase of your home. This same scenario applies also to rental agreements when renting an apartment, loans for purchasing a car, getting a small business loan to start a business, being hired at a new job, and even requesting the services of a utility company. It is easy to see that having a good credit history can affect many aspects of life.