Credit, yet again…

The basics of credit, how do you even begin to explain it?  One of the most basic ways is trust.  Trust is one of those words that you can understand easily when you think of employees, family, and maybe even your own.

1) Employees?  Yes, an employee who has trust of their employer may have a certain responsibility, a key, a passcode to get into certain areas, etc.  That trust is usually built up over time or comes with their previous responsibilities that they held elsewhere.  In a similar way, credit is steps in a ladder.  I am often approached by someone with absolutely no traditional or alternative credit (see my other article here: ) that now would like to buy a house and get a loan.  Start building credit first on the lower rungs before you jump the ladder to the higher rungs.

2) Family?  Yes, a young person builds the trust of their parents over time by demonstrating responsibility.  With time, they have less restrictions and more freedom because their parents trust that they make good decisions based on their previous history of decisions made.   In a similar way, over time, credit is built up by positive (or destroyed by negative) payment history.  Even if you made mistakes in the past, you can rebuild credit just like trust by making positive steps from today on.

3) Your own?  Your friend comes to you and asks for $20.  Assuming you have it, and don’t mind giving it away, probably you don’t even mind losing it.  But now add a couple 0’s, he wants to borrow $2,000, now the story changes a little.  You want to make sure that he will repay it.  What has been his past history?  Do you have to bug him each time, or does he genuinely want to repay you, even more than he borrowed or agreed to, and ahead of time?   These well illustrate what a lender looks at.  I am amazed that people who haven’t paid their doctor $100, their last credit card $600, their last apartment complex $2,000, and their last utilities a couple hundred dollars, now think we should lend them $100,000 with relative ease.  How are they going to pay back $1,000 when they couldn’t pay the doctor $100?

The point here is not to state underwriting guidelines or dissuade anyone from trying, but be willing to acknowledge that sometimes, the best way to “qualify” is to take an honest appraisal of oneself and your past payment history and ask, would I lend myself money?   If not, then work towards that goal now.   Either way, let’s talk with a little different lender…