So what exactly is credit? Credit lets us make a promise to pay in the future for something we really want, but can’t quite afford to pay for now. It’s a gateway from wanting to actually having. But how do you make credit work for you without it taking control of your life?
Without a doubt, credit plays a major role in our everyday lives. It helps us go to school and buy that first car — and maybe even that first really good interview suit. And it can make it possible to finally have a house of our own. Although my parents never borrowed a dime … but their house was also only $20,500!
Enter the lender…
So now we turn to the lender, whose main job (in addition to making money on the loans they make) is to decide if you are “credit worthy.” Someone they can trust with the obligation to pay them back. And your job is to actually pay them back … with interest. And on time.
But before you even get to asking for a loan, you need to manage your credit in a way that doesn’t leave you drowning in debt. Or hounded by folks trying to get money you can’t pay. Not only so you can be credit worthy when needed, but so you aren’t at the same time drowning in stress. And hounded by scary calls from debt collectors.
I call this page Credit 101 because the more you understand how credit works — and how you can make it work for you — the healthier you and your personal financial picture can be. And I use the word “healthier” on purpose, since the stress money (or lack of it) might lead to can also be a huge health factor.
Credit 101 basics to make credit work for you
Like it or not, lenders decide to loan you money based on their evaluation of how well you manage your money. [Read more…]