If you ask ten people on the street what they know about personal credit, you’re probably going to get more than a few confused stares. People have heard the phrase before, and they know how credit cards work, but if you ask them to get into the details, a lot of people just don’t have that knowledge.
It’s a shame. Personal credit is an incredible tool that you can use to improve your finances. It’s a measure of how well you use credit on the one hand, but it’s also a resource that you can collaborate with to increase your borrowing and earning potential for the rest of your life. If you understand just a few things about how credit works, it’ll make a huge difference in your life. Credit Sesame reviews from AAACreditGuide.com will show you some practical resources to help you look at your credit under a microscope.
Article in a Glance
Personal Credit: your history matters
First of all, you’ve got to understand how your credit history is recorded, and why. There are three companies that keep track of most consumers’ credit histories. They do this because people who lend money (banks, independent lenders) have to understand the financial history of the people they’re lending to. If they give money to the wrong person, they might not get it back.
This is where credit scores come into play. Your credit report is a long document that has information going back as much as seven years. Your credit score is a simple way to sum it all up. When you apply for a loan, your potential lender takes a look at your credit score. If it’s high, they know you’ll almost certainly pay their money back. If it’s low, they have to take measures to account for the extra risk of lending to you.
On the one hand, they might just deny your loan request. That way they’ll have no risk of losing money, but you won’t be able to achieve your goal, be it going to college, buying a house, or consolidating your debt. On the other hand, they might give you the money, but charge you a lot extra in interest and fees, to make up for the possibility that you’ll miss payments.
Good credit gives you options
If you pay more for loans for your entire life, you’ll miss out on money you could use for investment, saving, or spending on stuff you want or need. The same holds true for credit cards. Those with bad credit only have access to credit cards that are very expensive. Good credit gives you options, including some credit cards that are free for six months or a year, no matter how much you use them.
In the end, life is more expensive for people with bad credit. If you miss payments, use way too much credit, or generally spend more than you earn, this will be reflected in your credit score. A Bad credit score acts like speed bumps for your financial life. On the one hand it keeps you from doing much damage to yourself, but it also reduces your chances of succeeding in a big way.
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