Trust me, I don’t want to hear a heavy sigh immediatly after I ask “How’s your Credit History?”
Technical- Credit is the provision of resources by one party to another party where the second party does not immediately pay the first party for the resources in full, thereby generating a debt, and instead arranges either to pay for or to return those resources at a later date. (Source)
Party this, party that… sounds like a lot of fun doesn’t it? Well of course it is – you’re using someone’s money to pay for stuff you want or need. When the party ends, and you have bought what you wanted or paid for what you needed, the History begins. (It’s a play on words, get it?)
Credit History is essentially how you paid back the Credit you received. (On Time, Slow, Real Slow, Really REALLY Slow, or Not at All.)
Real Life- We live today in a society where everything is cash or credit, pay now or pay later; most seem to opt to pay later.
But Mr. *Mysterious Online Personality* you just told me in your prior entry that Paying Cash was not 1 but 2 nails in the coffin.
Yes, yes I did; however the obvious response would be don’t purchase too much of what you don’t need, but finance what you DO purchase. (This all has to do with our consumer mentality and keeping up with the Joneses, and is NOT a topic I want to touch.)
Credit, in the real world sense, is the risk involved when a bank, or lender invests their money in you; how likely are you to pay that money back?
Credit, however, is not some complicated formula; essentially there are three main reporting agencies, (Equifax, Transunion, and Experian) that issue you a score based on certain criteria.
1) Payment History: Simply put, on time payments raise your score while slow payments negatively affect your score.
2) Exposure: How much debt do you owe? If you have an insurmountable amount of credit card debt, your exposure (amount of monthly payments) is higher, therefore your risk level rises.
3) Public Records: If you have any unpaid tax liens, judgments, or suits; this will adversely affect your score.
4) Credit Inquires: If you have been out shopping your credit a ton, each and every inquiry that shows up will lose you credit score points. Think hard before applying for that new credit card.
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