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A WiseWeb Publication |
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Copyright 2005 |
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About Credit (continued) |
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Credit is simply the advancement (or loan) of a financial resource (or other asset) by one party to another, with the reasonable expectation that it will be repaid in full (usually with interest) at some future time, |
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It is easiest to establish credit at a young adult age. (Minimum age 18 in most states). Student loans, to help pay college tuition, are fairly easy to get. Your college financial aid office will help you apply. Many financing institutions offer special loan programs for recent graduates. |
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For the rest of us, getting credit or loans is dependent upon several factors. Among them are; length of time at present and past residencies, length of time at present and past jobs, gross or net income, other debt or loans, purpose of loan, and your credit history. |
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The length of time you have spent at your job and residence are indicators of how stable you are. From a creditor’s point of view; the longer the better. |
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Your income and other debt are used to determine your “ability” to repay the loan. |
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The purpose of the loan is often considered because lenders like to know that you will have some asset that they could attach and resell to recover their assets in the event that you somehow lose your ability to repay the debt. This is called collateralization. For example, if you default on an auto loan, they can reposes the car, resell it and recover all or part of the loan. |
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Finally, your past credit experiences are reviewed. This is done by researching credit reports and scores. Your credit history is a good reflection of your “willingness” to repay the debt. This factor is often the most important in a lender’s consideration of extending credit to you. |