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.

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