Understanding the Function of Credit

What is Credit?

Credit is the backbone and the engine behind the workings of the economy. Credit simply allows individuals and companies to borrow funds in good faith and pay it back over a specified time frame. Lenders base their decisions on who they should lend to by using your credit rating.

Your credit rating is a numerical score that is based on your payment history. From your credit cards and loans right down to your phone bill, you will find a recording of each payment. It reports whether you pay your bills on time or if you are constantly late. And if you are frequently late, it records the amount of time taken to make that particular payment. Your credit report is pulled (viewed) every time you apply for a loan, credit card and even to have a phone line installed.

Good Credit vs. Bad Credit

How important is it to have clean or good credit? It's very important because the worse off your credit is the harder it will be for you to secure a loan of any sort. It is important to keep on top of your credit finances and make sure that every payment is made on time and always make sure that you pay at least the minimum amount but always try and pay more if you can.

If you currently have bad credit, you shouldn't worry too much as there are ways to still secure a loan such as having a cosigner. If you choose to go this route, remember that you are both responsible for the loan as it will be taken out in your names. Also, there are many institutions that work with people with bad credit and they will assist you with the repair of your credit file. Here's a list of a few companies to assist you:

CreditAxis.com, DebtAdvocates.cc, Lexington Law Firm and more. Simply go to your favourite search engine and type in "Credit Repair" and see how many companies show up in your search. Warning: Be wary of those companies that promise to repair your credit promptly ? ie "3 months or less". Credit repair takes time, so do your homework before you commit to one company to assist you.

Your Credit File

If you have bad credit, the first step to repairing it is to pay off all of your bad debts. This is debt that is overdue and not up to date. You may not know this, but this information may stay on your file for up to 7 years. To assist you in this, I suggest that you get a copy of your credit report from one of the credit reporting agencies such as Equifax. Look it over thoroughly because you may find some mistakes which can be easily corrected with either a simple phone call or with supporting documentation.

Sheldon C. Smith is the owner of http://www.sheldoncsmith.com, a site dedicated to keeping the public informed and educated about the mortgage and credit process.