How Your Credit History Affects Your Borrowing Options

Credit ScoreUnless you have enough cash on hand to purchase a home or car outright without financing, you may find yourself in a situation that requires you to borrow money from a lender. Your credit history becomes the most important aspect of your life in this situation, but that’s not the only time it’s important. For example, even if you do have the cash to make any purchase you want without any financing requirements, you might not be able to secure a job, an apartment, or even a rental car if your credit history is not good enough.

What Your Credit History Says About You

Your credit history is a long list of the way you use money when you borrow it from someone else. For example, if you had an online installment loan with a lender you did not pay back, it shows up on your credit history. It tells other lenders that you are not a reliable borrower. Lenders want to see that you can and will repay them if they choose to lend you money. If they see regular late payments, missed payments, or defaulted loans on your credit report, they’re not going to give you the money you need to buy a car, a house, or even a credit card.

How to Fix Your Credit

If your credit is damaged, it’s not the end of the world. It’s not ideal, but you can repair your credit by focusing your time and putting effort into it to make it easier on you. The first thing you should do when you’re working to repair your credit is to check your credit report. You should know where your problems are, and you should know if there are any mistakes listed on your credit report. If there are mistakes on your report, dispute them. Write a letter to the credit bureau explaining what is wrong with your report. If you have proof that something is incorrect, provide it to the credit bureau.

The bureau will ask the creditor to fix the problem. If the creditor does not respond within 30 days, the issue is removed from your credit report. If the creditor does respond, it’s either to fix the problem or to say that they feel they are right in reporting what they reported.

The next step is to make all your payments on time, pay down your debts, and make sure you do not utilize more than 30 percent of your available credit. Do not close credit cards if you pay them off. This lowers your available credit limit, which causes your credit utilization to rise.

How Bad Credit Affects Borrowing

When your credit is bad, you simply will not get a loan from any lender. If your credit is bad but not awful, you might be able to get a loan from a lender, but you’ll pay a much higher interest rate. This means the loan is more expensive to repay. You can always find a cosigner to help keep your rate low and to guarantee you get a loan, but many people are hesitant to cosign a loan for someone who has a rocky credit history.

If you have the cash to make large purchases, you might not need to borrow money for things. However, you must take care of your credit score. It’s the most important number in your life in terms of your finances and your financial future. Pay your bills on time, don’t incur too much debt, and be careful with your credit report.

The Pros and Cons of a Mortgage

mortgageA mortgage is a long term commitment in the form of an agreement that is signed between the two parties who are the buyer and the seller of the home. Now there are a number of advantages and disadvantages associated with the mortgage that comes to an individual

Now first lest us talk about the several advantages that the mortgages come with-

  1. Cost effective borrowing

This is one of the benefits of the mortgage which is that the interest rates of the mortgage are usually lower when it is compared to those of the other types of loan borrowings.

  1. Tailored borrowing

While going for mortgage you get a variety of options to choose from. There are various choices of mortgage types like the tracker, fixed rate, variable rate or discount mortgages. Thus you get more number of choices of finding the right kind of mortgage deal for you.

  1. Longer term mortgage

Now days, instead of the 25 years mortgage one can choose the 30 year mortgages. This way the cost of the house purchase is spread over a longer time period. This in turn means that you have you pay less for your monthly payments.

  1. As an investment

Mortgages can be considered as long term investment. This means that when you pay mortgage that is something that you will eventually owe one day. It’s more like renting an equivalent property while you are outgoing on a mortgage.

Now let us talk about the several disadvantages that it has-

  1. Debt

Taking out a mortgage means taking on debt. You are going to borrow money in the form of loans. Now sine loan always come with some interest rates, when you are buying something on mortgage you promise to return that money along with the interest added. This way you will end up some extra money that what you borrowed initially.

  1. Secured loans

This is yet another major problem. That if the person who is dealing with a mortgage isn’t able to keep up with the loans may eventually lose their homes. This is mainly because the mortgage is secured against that property which is being bought.

  1. Additional fees, charges, add-ons

Mortgages come with some extra cost as well. For example valuations fees which may include additional fees lie charges, add-ons etc. when all of these are added together, it can add up to a significant amount of money. 

  1. Potential foreclosure

For situations in which you get caught up in an unexpected financial crisis, and are not able to pay for your loans, may end up facing face foreclosure. Now although there are a few lends would still work with you to ward off this situation, there are theirs who would take legal action against you.

Conclusion

Thus the mortgage comes with several pros and cons. And it depends entirely on the person and their financial station whether they want to go for it or not.