Keep Your Promise And Credit Is A Powerful Tool. Break It And Credit Can Be Your Financial Downfall.

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Author: tireddadoffive

Article source: http://www.articledeshboard.com/. Used with author's permission.

Credit is literally based on belief. Credit derives its meaning from the Latin word credo which means "I believe". The real issues at hand are: Do you do what you promise? Can you be trusted? Have you established a good reputation financially? Banks use these as the basis for forming an opinion about your credit-worthiness.

Credit itself is a simple enough concept to understand: You get something now with your promise to pay for it later. It is important to point out that credit does not increase one's income. It is a tool to be used allowing you the convenience to spend money you have already saved. The previous is so important I want you to read it again and grasp its importance. Where people start getting in trouble is when there credit spending gets out of hand and their income, or savings, cannot cover it.

It is a simple fact that businesses make money when you use credit. This is no big revelation in itself as we know banks are in existence to make money on the interest portion of our monthly payments. This is their largest source of revenue by far so you can imagine they are eager to exploit as many was as possible to increase it, and of course at your expense. Creditors would like you to spend as much as you can-as fast as you can. They want to "help" you spend your future earnings today. This is their basic plan. This plan brings them unlimited joy - but it may not bring you the same delight if you cannot control your credit spending.

Creditors have made many types of credit available to consumers. This is no big surprise to anyone who walks to their mailbox every day. Despite the seemingly endless varieties there are still two basic credit types:

Secured credit: As the name implies the lender has some protection if you default on the loan. There is real property to back this type loan. Generally, the interest rates are lower and the length of time to pay it off is longer. This category includes mortgages and vehicle loans.

Unsecured credit: This type of credit is typified as being more expensive, with shorter pay back periods, and at a considerably higher risk to the lender. Because it has no backing of real property the lender has a higher degree of risk and is more vulnerable if you default. Credit cards fall into this category.

How do lenders determine the likelihood of you paying on time as promised? There are three things lenders need to know to gauge you as a risk:

• Do you do what you promise?

• What is you debt load? How much debt can you handle versus your income?

• If your income drops or dries out what cash or property could be used to repay the debt?

Where do lenders derive this "intelligence" on you? The answer is your credit report and your credit score. Technology allows them to do this today with near lightning speed. For example your favorite department store is running a big clearance sale and you want to take advantage of it. Your checking account is a bit low at the moment but lo and behold they have a table conveniently set up right at the main store entrance offering a 90-days-same-as-cash special. All you have to do is sign a few papers and within minutes your credit has been checked and you are on your way with your purchases.

Today it is ridiculously easy to obtain credit. Creditors have mastered the art of advertising to our emotions and prey upon our compulsive need for instant gratification. We are creatures of habit, and this includes our spending. Unless you want to run the risk of financial ruin, finding yourself unable to prevent or stop home foreclosure, or worse yet having to file bankruptcy you have to take action to get your credit spending under control. Your financial life may depend on it.

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