Credit and Loan Resources

For December 1, 2006

The importance of Credit

By Ashton Bishop

It is a well know fact that the single most important financial factor determining your future ability to borrow money is your credit. With good credit, established by making regular, on time payments on secured credit cards, used car loan, personal loan payment, mortgage payment and a host of other financial transactions dealing with having to have borrowed money, you will reap a few benefits that generally make life easier. You will quality for better interest rates on personal loans, business loans. credit cards, car loans and mortgages. Banks will like you and will occasionally even go so far as to wipe a bounced check from your record if you show that you have a spotless record previous to the incident. In order to qualify for good rate on a home loan, a refinancing loan or a credit consolidation loan, you have to have good credit. Banks want to lend you money, you just have to be credit worthy and a good risk.

With bad credit, established with a history of late payments, loan defaults, bounced checks and generally any time you are not giving some company their money for a service or product rendered, you become a great risk to most banks because they know they may not get back what they give you. I said most banks, because there are institutions out there that will give you a personal loan no matter what your situation is as long as you can provide a verified employer and your name, but these are less then savory institutions.

These payday loan businesses feed on those in our society that are unable to gain credit from a standard bank. They know this and they realize you are really in need of the money, so they give it to you, but you better pay it back hast, because there are a few things that can get you in trouble quickly. See, these loans are very high risk personal loans or cash loans. They come with an incredibly high interest rate compounded monthly and before you know it, that 300 dollar loan you just got has turned into 700 dollars you must pay back in on a few months or what ever. If you don't pay them back. They take your TV, or you get a nice visit from Guido. One way or another they make their money and you go deeper and deeper in debit and your credit gets worse and worse to the point where you will spend the rest of your life paying off nothing but interest on this payday loan on things you bought ages ago. Its horrifying I know, I've been there.

When I was 22, I was young and stupid and bought a car I was on the borderline of not being able to afford, but I thought I could swing it. I got married and my wife also had a nice car she really couldn't afford. We were not making much money at the time and we fell into financial difficulty. I had to let them repossess my car, we defaulted on a couple store credit cards, it was awful. The financial difficulties became a point of great tension in my marriage and we wound up getting divorced. I was miserable, in a pit and was scared to death to declare bankruptcy. I just did not want to face that 7 year dead period before I would be worthy of credit.

I was laying in bed one morning as my life was collapsing around me, knowing I was responsible for what I let happen to myself. I would have to move out of my apartment, because I could no longer afford it, I lost my car, my wife, my self esteem. As I laid there in misery, I knew what had to happen, I knew the right way to go, I knew it would be long and hard, but it was something in my face that there was no avoiding and it was sink or swim time. At that moment, I decided on my course of action.

I had to get my credit rating back up. I had a job, I wasn't making much, but at the minimum, I gould keep my belly full. So I planed my course of action. I bit the bullet and completely minimized my expenses. I got a consolidation loan with a co-signer. I needed that so I could just make one payment. I highly recommend credit consolidation loans. I moved into a small apartment and bought a jalopy that could get me to and from work, but it was paid for. Then I just started paying my utilities on time, made every single rent payment and did my time. After a year I was able to get a credit card with a $500 limit. I made small purchases and made sure I paid the entire balance off every month. My expenses were very low and I was living low, so I was able to do this. I started to make more money and steadily tried to worked off my $18,000 worth of debit from my previous life. I laid every extra dollar and bonus I got, on that debit, because I knew the faster I got rid of it, the quicker I would not have to pay on it anymore and the money would become mine again.
It took me 5 years, but I did it. I was completely out of debt and was able to start actually saving money. My credit rating climbed and I was finally able to full a dream and buy a house. When interest rates dropped really low, I got a home refinancing loan at 5% that I hope I can keep for the duration of the loan.

The point of this story is that you need to start with a good credit rating and keep it that way. Once you are in debit and you can no longer finance your expenses, it is a long haul to get out of debt and restore a bad credit rating. Don't waste years of your life working off debt. Don't live beyond your means.