Five Fallacies About Developing Credit

Having a good credit history is very important because it does not only affect your ability to borrow money but also another aspect of your life, which is employment. If you are currently studying college or starting your career, it is vital to know myths about credit as soon as possible. The following are five myths about building credit.

The first myth is if you don’t borrow money, you don’t need to build credit. Although you pay cash for college expenses, car, or clothes, credit is still needed for things such as insurance policies or employment. Credit can be a factor for the price that insurance companies will give you or credit history can influence employers to either hire or promote you.

The second myth is it is better to use your credit cards frequently. Having a high credit utilization ratio (CUR), a percentage of a limit that is used, can damage your credit score. According to FICO, it is better to keep your CUR less than 30 percent and a few credit experts even suggest a CUR of 10-15 percent.

The third myth is not using credit indicates that you have good credit. Contrary to belief, having small to zero credit history is almost having bad credit because banks have no basis for your worthiness. Start building your credit as soon as possible, and if you don’t have student loans or other credit accounts, ask a local bank to you assist you in building your credit.

The fourth myth is that demographics affect credit. Demographic data such as education, income, gender, race, or location does not affect your credit but your credit score. However, age might affect your credit to some extent because the age of your accounts also matter.

The fifth myth is that minor misbehaviors do not matter. While it’s undeniable that major delinquencies damage your credit more, minor ones can mess things up as well.

Low Interest Rates May be Costly in the Future

According to an article in the national media, a graduate of Harvard masters of business administration was able to pay off his student loan with a balance of $91,000 in a span of seven months.

What’s interesting in the story is the MBA graduate was surprised that after two years of payments every month on his $101,000 loan, just about half of his total payments decreased the loan balance or principal. The other half was taken up by interest charges, most of which accrued during his stay in school.

However, the more important thing is that the story shows the role that interest rates play in our lives and our economy.

For instance, throughout the recession and our lengthened weak recovery, we have not understood the actual burden of our national debt due to very low interest rates. However, it is easy to understand that low interest rates can indicate less costly borrowing. Moreover, we have to be familiar with how financial markets work to know how our increasing national debt will make a predicament for our economy in the future.

While the economy is expanding slowly, our savings surpasses the total amount of business investment opportunities. Consequently, a significant amount of cash becomes available. That existing cash was further increased by the delay in the global economy and particularly by investors in search of safety from the financial crisis in Europe.

The outcome for the U.S. has been a flow of cash seeking to be exchanged for Treasury bonds. But since bonds become a debt payable in the future, their cost decreases when the interest rate increases. On the other hand, when interest rates are at their lowest, then bond prices or values are at their highest as well.

More than $5 trillion of Treasury bonds have been sold and their values will decrease as soon as the global economy starts to recover and interest rates start to increase. People holding those bonds will most likely want to sell them right away, but the result will be even higher interest rates.

Not only economists must worry about this dilemma but it also reminds us that interest rates are vital to us and our economy.

Future Depends on Good or Bad Credit

This year, one important thing that can influence your future is having either a good credit or bad credit. Because it is vital to have a good credit score, you must look for a reliable credit expert and understand the process of borrowing and lending.

UK has verified the double-dip recession recently, and it perceives banks and money lenders making less risky actions with their money. As a result, there is a growing quantity of exposure in the media with regard to the problem of credit rating and credit scores and the significance for average consumers who are seeking assistance.

For those who are applying for loans to put up a business or promote their careers, they must know about the fact that banks are demanding more of their borrowers, in their desire to make substantial and profitable investments.

According to Conal Duffy, consumers must be familiar with their financial information and status. Duffy was once rejected for a mortgage application due to an error over a payment for his ex-wife’s telephone bill.

Moreover, a name spelled incorrectly can lead to months of bills delivered to the incorrect place and consumers might only know about this when their credit score becomes strangely low.

While the ease of access of the internet is frequently the cause of poor credit, it can also be the origin of knowledge and positive advice.

A BBC business article reminds the public that if you would like to know your credit score, you must seek the assistance of one of the three credit reporting bureaus in the UK.

One of these credit reporting bureaus is Experian, which offers Credit Expert and Ask James. In Credit Expert, consumers can get a free credit report and subscription to their credit check service. On the other hand, Ask James is a public-facing advice system that directs customers’ concerns to the company’s Head of Consumer Affairs, James Jones, and provides them a specific advice.

Credit Unions are Recovering from Recession

Credit unions provide the majority of the same consumer services as banks, however at a little lesser cost. Credit unions in Arizona and nationwide are gaining profits once again and are trying to fix the bad loans that accumulated during the recession. Moreover, they are enticing new members or costumers, as well as those that are dissatisfied with big banks.

On a national scale, profits of credit unions during the first quarter reach $2.1 billion, which is almost 25 percent more than that of last year. Moreover, 667,000 new members signed up during the months of January to March. In addition to the 1.4 million in the previous year, credit unions currently aid 92.5 million Americans.

According to Debbie Matz, chair of the National Credit Union Association (NCUA), the credit unions’ overall assets reached $1 trillion, and for the first time, the net worth of the credit industry topped $100 billion during the latter part of March.

The majority of the credit unions in Arizona are gaining profits once again after a difficult situation during 2009 and 2010. A few of the bigger institutions’ profits for the first quarter increased approximately twice or more than what they earned last year.

The NCUA added the credit unions in Arizona headed the nation during quarter one in return on average assets, which is a major profitability measure.

On the other hand, banks are also improving in terms of their finances and are still surpassing credit unions. Based on a report from Federal Deposit Insurance Corp, during the first quarter, banks nationwide earned $35.3 billion, which is an increase of more or less 23 percent. The assets of the banking industry reached $13.9 trillion.

Since credit unions are owned by its members and are not-for-profit, they can charge loans at slightly lower interest rates than that of banks. Also, credit unions do not pay income taxes, which is unfair according to bankers. However, senior vice president of Arizona State Credit Union in Phoenix, Paul Stull, believes that the increase in credit union members is caused by the drive to support local firms.

How to Rent an Apartment with Poor Credit

Besides difficulty making purchases, having a poor credit can also mean that you will have difficulty renting an apartment. On the positive note, there are still ways that you can have a nice apartment and the following are some tips on how to do so with poor credit.

First, get a copy of your credit rating and examine it. If there are any problems in your credit, then try solving them. For instance, pay off previous debts to improve your credit score.

Second, consider getting a cosigner, someone you know, a family member or a friend with good credit score, who will be held responsible for your liabilities in case you don’t pay. This can help convince the landlord that your rent will be paid. Although cosigning is avoided as much as possible, there are a lot of landlords who are more comfortable renting to people with poor credit, as long as there is a cosigner with good credit.

Third, pay a huge amount as deposit. Paying more than the average deposit can make the landlord feel more confident about renting to you. Besides earning back their losses, landlords will feel that you are sincere and will be more difficult for you to leave.

Fourth, find an apartment that does not require a credit check. Unlike bigger corporate apartments, there are small-time landlords that do not perform credit checks because of the additional expenses and hassle for them. Even though it will be harder for you to find an apartment that don’t perform credit checks, there are still good apartments among rental properties.

Fifth, don’t only think of the apartment you’re getting right now but also having a long-term plan of improving your credit. By doing so, it will not only allow you to get apartments easier, you will also be able to get auto loans and mortgages. One of the benefits of improving your credit is there are landlords who require smaller deposits from those with good credit.