Review your credit
How do you get credit?
For credit to be extended to you, a creditor looks at two things:
- you as a credit risk. Each creditor has different ways of evaluating applications for credit. By reviewing various factors such as income, length of employment, how long you’ve lived at one residence, previous credit history, amount of outstanding debts, stability of your checking and savings accounts, number of dependents, and so on, creditors can determine, to a certain degree, whether you will repay the amount borrowed over a certain period of time.
- the collateral you are purchasing. If you fail to make payments on collateral purchased with credit, it’s easier for a creditor to repossess items like furniture and appliances than to foreclose on a home. The interest rate for installment debt is much higher than the interest rate for mortgage loan debt and affords the creditor the opportunity to assume a higher level of overall risk in the event of nonpayment. Therefore, credit may be extended to even those with a questionable ability to pay when it comes to purchases like refrigerators and stereo systems.
Where a home has been posted as collateral for a loan, the foreclosure process can be costly and time-consuming. The lender assumes a greater amount of risk at a lower interest rate. Therefore, the lender is going to evaluate you and your credit history more carefully when you’re trying to buy a house. Unfortunately, this is where most people learn their first real credit lesson — when credit is really important — because they are stunned and surprised when denied, based on their credit card use.
