If you’re in the market for some personal loan and it’s your first time, you probably have no idea where to start. It can be scary and confusing and that’s normal. Most people with either good or bad credit now also started the same way. But in order not to belong to bad credit end of the spectrum, there are things you need to know first. Because at the end of the day, it’s always best to stay on the good credit side. It all depends on you to pull that off.
To help you get started on the right foot, here is your quick guide to credit:
What is Credit?
Put simply, credit basically means you are borrowing money. You are called the borrower and your lender the creditor which extends you a line of credit at specific repayment terms you must agree with. You can then use the money to spend on your personal needs. But you must remember that you need to meet the repayment terms until the end of term in order to avoid getting your credit score screwed up.
As a simple rule to follow, first time borrowers should only take out a personal loan you need and can afford to pay comfortably. If you think you can’t handle the repayment terms, look for other options or postpone the borrowing until you can afford it.
Types of Credit
There are numerous types of credits in the market to choose from. From credit cards to mortgages, hire purchase agreements, overdrafts and a range of personal loans such as payday loans, logbook loans and more, you’ll have a bounty of choices to consider. Other credit agreements such mobile phone contracts are also a type of borrowing. Even gym memberships and other services that require you to pay regular monthly payments are a type of credit.
But in general, there are two major categories of credit: secured and unsecured. Secured credit, as the name suggests, is a type of loan that requires a security or collateral maybe in the form of your home, car and any other acceptable asset. Unsecured credit, on one hand, is a more flexible type allowing you to borrow money even without collateral.
Either way, when you’re borrowing money, the key is to stick with what you can afford especially if you’re hoping to build a good credit score.
Pros of Credit
While many financial experts may discourage first time borrowers from going this route, getting credit is not always a bad thing. In fact it comes with a number of advantages when done right.
A good credit record, for example, can significantly improve your financial chances to be accepted for a mortgage loan. If you’re planning on buying a home anytime in the future, starting to build your credit as early as you can is a smart move. You’ll also enjoy expedient approval for personal loans, mobile phone contracts and other types of credit.
Using credit cards to make your purchases is not always a bad thing. Just remember that you need to use it with caution and responsibly in order to reap the advantages.
Building Good Credit
Before you go on ahead and start applying for any type of credit, you need to first make sure that you are registered on the electoral roll. This is if you want to effectively build a good credit. According to experts, the electoral roll is where your credit record is hooked and it makes sense to start right here before applying for anything.
Once you’re registered, you can start shopping around for personal loan and credit options tailored to your financial situation. You can start with a short-term loan for example then make sure to pay off the loan consistently and on time to start building your credit.
You can also apply for a credit card designed especially for people with no credit record yet to kick off the process. You may also apply for a mobile phone you can afford because that usually helps with building a good credit history.
And most importantly, you need to make sure you have bills registered under your name. Pay those bills on time every month and your credit score is bound to reap the rewards of your diligence as a consumer and as a borrower.