The scariest part of October is not the monsters or zombies that run wild one night of the year, it’s something that you see every single day –your credit! More and more consumers, especially young adults, are not properly educated when it comes to using credit wisely. The American Bankers Association has decided to do something about this and has dubbed October 18th Get Smart About Credit Day – but we at FNBT want to make sure our customers stay smart all year around. We gathered tips from the Federal Reserve and the American Bankers Association Education Foundation to help you better understand your credit, for October 18th and every day thereafter.
To start, consumers should know that lenders base an individual’s credit worthiness off of the following four factors (just remember the 4 C’s):
· Character – The lender will look for reliability in you, based off your employment history, rental history, previous loan repayments, etc. – to determine your likelihood to repay this new loan.
· Collateral – Lenders may require something to “back-up” the loan, if you, the borrower, become unable to pay – likely examples are a car or your house
· Capacity – This means that you, as a borrower, has the funds to repay the loan; a steady paycheck is usually a positive indicator
· Credit – Your lender will review your credit history, including payments, outstanding debt etc. – all of which can be found on your credit report.
Since lenders review your credit report, it is also helpful to know the factors that could negatively affect your report, and your score, as well as some questions to ask yourself, courtesy of the Federal Reserve:
· Do you pay your bills on time? If not, those late payments could show up on your credit report, lowering your score and possibly your “character” to a potential lender.
· What is your outstanding debt? Lenders may check how much debt you actually have and then compare it to your limits – or the maximum amount of debt you are allowed – and if the amount you currently owe is near that maximum limit, it could negatively affect your score.
· How long is your credit history? The shorter your credit history, the less you proof you have of your ability to repay this new loan in a timely fashion – but a short history can be offset by other factors, such as timely payments and low balances, which show your character and capability to lenders.
· How many and what types of credit accounts do you have? Too many, or too new, credit cards might hurt your score due to you carrying more, and more recent, balances than necessary. A mix of different types of credit however, like installment and revolving, could improve your score, showcasing your ability to repay in both short and long term capacities.
Tips and information provided in this post are attributed to the Federal Reserve and the American Bankers Association Education Fund. There is no profit being made from this post, nor is there any copyright infringement intended.