Throughout
much of their history, and even today, many people believe that credit cards are dangerous. However, when
used responsibly, a line of credit is beneficial to a consumer’s future. In
fact, building up credit is essential in many aspects of life.
When an
individual attempts to obtain a loan, a lender will review his/her credit
history in order to determine whether he/she is creditworthy. In many instances, when an individual applies for a job, the
employer will analyze the applicant’s credit report. If a credit report
displays evidence that an individual is financially irresponsible, then he/she
may not be granted a loan or may not be able to gain employment.
A consumer
may obtain bad credit by failing to make his/her regular monthly payments. If
an individual is late making a payment, or fails to make a payment entirely,
this will be reflected on his/her credit report and it will adversely impact
his/her credit score. However, if an individual is successful in building
credit, he/she may not experience difficulties securing a loan, housing, or
employment in the future.
Building up credit is important for various areas
of life. For example, building credit is essential if an individual wishes to obtain
housing. When an individual attempts to purchase a home, he/she will be
required to apply for a home mortgage loan. The lender will review an
applicant’s credit history in order to ensure he/she is not a high risk
investment. If the applicant has not effectively partaken in building up
credit, he/she will likely be denied a loan based on the lack of evidence to
indicate financial responsibility.
When a
creditor takes a financial risk by granting a loan to a consumer, they need to
be convinced that the borrower will repay the debt. If an individual has not
taken the proper steps in building credit, there will be no proof of financial
responsibility. Likewise, an individual that has not taken part in building
credit will find it difficult to lease an apartment. An individual will review
an applicant’s credit report before allowing him/her to rent an apartment. If
the applicant does not have a credit history, it is likely that he/she will not
be allowed to rent an apartment, or he/she may be charge a larger security
deposit to lease the space.
Just as with
obtaining housing, building up credit is essential for buying a car. If a
consumer has not established a credit history, he/she will not be permitted to
buy or lease a car under his/her name. Attempting to obtain goods and services
as simple as a cell phone contract will be more difficult and more expensive if
an individual has not built up his/her credit. If an individual ever wishes to
start his/her own business, he/she will need positive financial records.
Building up credit is not difficult. It is
generally easy for an individual to obtain a credit card with a low credit
limit, even if he/she has not previously established credit. He/she may be
granted a card with a $1,000 limit. If a consumer uses his/her credit card to
make purchases and pays these debts off every month, he/she will achieve an
exceptional credit report. However, these payments must be made on time every
month. If a payment is late, then this will be noted on an individual’s credit
report and it will adversely affect his/her credit score. While it is important
to build up credit, it is also essential to ensure that you do not accrue more
debt than you can handle.
