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CREDIT PERSPECTIVE
Credit has become an inescapable fact of life.
But at the same time, you are most likely finding that the ability to obtain credit has become much more difficult. Credit granting guidelines have stiffened. It's now more evident that we as consumers become knowledgeable about credit.
Credit is there to assist us in many areas of our lives, but if we don't understand how it works, we many times find ourselves abusing it.
When we apply for credit, creditors will show concerns with our needs, but they are more notably concerned with your ability to repay the debt, under their terms and conditions. It's not their problem if you lost your job or were injured and couldn't work anymore, it's yours.
Creditors issue credit to increase their sales. If we don't have the cash on-hand, we are more apt to by it now and pay for it later. Further, the issuing of credit makes money.
Creditors make big profits from the interest they charge you..
Creditors judge your "credit worthiness" by looking at your type of job, length of employment, position, residence, dependents, bank
records, etc., as your ability to repay the debt. They also look at your past credit history, including who has granted you credit, the amounts, and your repayment history.
Credit grantors usually take about
70% of your net income and use that figure as a maximum ceiling used toward your fixed expenses (rent, debts, etc.). You should not use more than about 20% to 25% of your net income toward variable expenses
(food, utilities, fuel, etc.). Your credit obligations should not exceed more than 10% of your net income. It can also take about two years of established employment and residence to satisfy most credit grantors.
Your credit history is equally important during your evaluation, as is your ability to repay. The best references you can have are those which show your purchasing strength.
Those being installment loans, major bank cards and major department store cards. They also want to see a steady repayment history. Owning a home and financing a vehicle will show your financial strength. They will look closely at your credit history within the last two to three years as the most reliable evidence of your credit ability. Further, most creditors will prefer granting credit of the amounts and terms similar to your past credit.
One last important factor to be aware of, which is usually not known, are INQUIRIES. Inquiries are noted on your credit record when a credit grantor, employer or other business purchases your credit report
for any reason. It is important to note that the way the federal law was written, anyone with a "legitimate business need" may inquire about your credit history, even without your written
authorization.
You can be rejected for credit just by having as little as 3 inquiries on your credit report in the last 6 months. This is because in can take up to six months for newly approved credit
to be reported to the credit bureaus. When an inquiry is noted it does not reflect whether you have been approved or denied for credit. Credit grantors will assume that if all inquiries were approved you
would most likely over extend your financial capabilities.
Once you have obtained credit we learn how important it is to maintain it, in good standing.
Once you have missed a payment or defaulted on your debts, you find a black mark on your credit files. Now you find yourself treated like an "spendthrift", "high credit risk", or "deadbeat" and your pride is hurt. Remember, by having any credit problems of a negative nature, the credit reporting system will have you pay a seven to ten year penalty.
When you get denied credit, your creditor must send you a letter of rejection within 30 days. It must tell you the reason(s) for being rejected and the name and address of the credit reporting agency
whose file was used for evaluation. (see "Obtaining Copies Of Your Personal Credit Reports")
We highly recommend that you do not apply for credit often, and only apply when absolutely necessary.
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