These days all we do is hear about credit… credit protection, credit monitoring, credit fraud… the list goes on and on. We can’t even go 10 minutes during a baseball game without seeing at least one commercial about fixing bad credit. Since we are inundated on a daily basis with news about credit, let’s take a look at exactly WHY we need credit in the first place.
In simple terms, credit establishes a reputation for your ability to handle money. Just like we have a reputation for being a good or bad student in school, lenders want to know if you can handle your finances and pay them back any money they may lend to you. If you have bad credit the lenders can see they probably want to invest their money elsewhere (or charge you a higher rate) and if you have no credit then they aren’t sure what they should do with you, and probably won’t take the risk without racking up more interest.
So what do you need credit for? Basically any time you borrow money or have someone “loan” you a service. If you plan on buying a home you will need a mortgage 99 times out of 100 (unless you have a rich uncle who is willing to pay for it in cash), if you want to go to college with a loan or even if you just want to get a new cell phone contract, your credit reputation is on the line and no matter how nice a person you are your credit score is the only way they’re judging you.
It’s not easy to keep up a good credit score, but it’s really easy to have a bad one. If you forget to pay a bill one month, if you are late on a handful of bills throughout the year, if you work with a debt reduction agency to reduce your credit card debt or in extreme cases if you file for bankruptcy you can do damage to your credit score that takes years to fix.
Really the only way to keep up your credit is to pay close attention to your finances. Know how to live within your means, set a budget (and stick to it), don’t open too many credit cards and pay your bills on time, all the time… not most of the time, ALL the time. If you do this I can guarantee you will have a quality credit score (barring some sort of criminal identity theft mischief) and you will in turn get approved for loans and pay less in interest charges to boot.