Just as you feel better about loaning money to
a friend who paid you back quickly the first time, your good credit
history increases the confidence of your creditors. With a good
credit history, you can borrow more money at a lower cost.
Building good credit
If you have no credit history, you might be required
to show proof that you paid your rent or utility bills on time.
You can get credit if you are under 18, but your
credit history doesn't start over when you become of legal age.
That missed car payment when you were 17 will still be on your credit
report when you turn 20.
The most important part of a credit history is
on-time payments. Anytime a credit history shows several late payments
(30 days, 60 days, 90 days or more), a note is added to the report.
The creditor may see it as riskier to lend money to people who did
not pay their previous debts on time. Credit
may be denied or interest rates may increase because of a history
of late payments.
Credit mistakes are costly
A person with an impaired credit history may:
Pay higher interest rates
Be
approved to borrow less money
Be
denied credit
Creditors try to balance the risk of impaired credit
by charging higher fees or prices. This is called risk-based pricing.
Keep in mind that if you have a good credit history,
you'll pay lower interest rates and have more financial resources
in the future. If you have a poor credit history, the opposite is
true. Over time, you will have spent thousands of dollars on interest
that could have been put in a savings account or other investment.
