Credit

Credit is borrowing money, usually to buy goods. Interest usually has to be paid on a loan. There may also be administration costs to pay, and interest may be charged on these too. A creditor is an individual or a company making a loan and may also be known as the lender. There are some different types of credit. The most common type of credit agreement is a credit sale. Under credit sale, you buy the goods at the cash price. You usually have to pay interest but some suppliers offer interest-free credit. Repayment is made in installments. You are the legal owner of the goods as soon as the contract is made and the goods cannot be returned if you change your mind.

The supplier cannot repossess the goods if you fall behind in repayments but can take court action to recover the money owed if you are in arrears. Under a hire purchase (HP) agreement, you are technically hiring goods until you pay the final instalment. You will not own the goods until then. This means that you can end the agreement and return the goods at any time. Under a conditional sale the goods do not belong to you until you have paid the final instalment. The lender may be able to repossess the goods if you fall behind with payments. Credit cards are supplied by banks, finance companies or shops.

They can be used to buy goods or obtain money from a bank. You will get a monthly statement saying how much you owe (including interest) and will be told the minimum amount you must pay that month. You may also have to pay an annual fee. There are also charge cards. The difference between a charge card and a credit card is that the amount borrowed on a charge card must be repaid in full at the end of a given period, usually a month. Interest is not charged on the amount but you may have to pay an annual fee for the card.

Lenders use a number of methods to decide whether or not to give credit. If you are told you cannot have credit you can apply again, either to the same company or another one. You have no right to be granted credit or to be given a reason why credit has not been granted, although some creditors may give this information. A lender can ask for a reference from your bank but the bank cannot provide this without your authorization. The bank may charge you for providing the reference. You are entitled to a copy of the reference given by your bank. If you think you have been refused credit because the information is incorrect you should contact the bank. It is always sensible to shop around before you decide to borrow. Make sure that you are getting the most suitable type of credit for your purposes and the most favourable terms. Compare the cost of different types of credit by looking at both the annual percentage rate of interest (the APR) and the length of the agreement.

Credit reference agencies collect and store information about everybody’s financial situation. Agency records are not a ‘blacklist’. Credit reference agencies provide factual information to lenders, for example, banks, building societies, finance houses and major retailers. The lender uses the information provided by the credit reference agency, together with the information given by you on an application for credit, to decide whether or not to grant credit.

If you fall into debt, your credit reference file will show this. You could then find it difficult to get more credit, or for example, get a mortgage. The agencies list details of the electoral roll, your credit agreements, including balances and payment histories, home repossessions and failure to pay your mortgage, money judgments in the county court, bankruptcy orders and voluntary arrangements, previous credit searches, administration orders. You can check your credit file to make sure it is correct.

Den Braun is an expert in finance. The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. Den Braun writes about Debt settlement & debt negotiation, credit report, credit repair and other related topics. To learn more about debt and finances in general, visit http://www.credit-repair.tv

This entry was posted on Friday, February 23rd, 2007 and is filed under Debt Consolidation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.