Whether you want to buy a home, a car or other major item, your credit history will play a big role in your success in making that purchase.
Valerie RumboughLending is now tighter than ever, so it is very important that you know what shape your credit is in. You can check your credit by going to annualcreditreport.com to receive a free credit report from all three of the credit-rating agencies listed there. Because they are each required to furnish this information to you, you can effectively check your credit report three different times a year at no cost. You can also pay about $10, and the credit agency will send your credit score to you.
What if your score is not stellar (at least 700)? You may have to work at improving your score by catching up on late payments, etc., for a few months. You may even want to call the lender and find out what it will take to clean up your history with them.
If you have credit cards that have a zero balance and you don’t use anymore, don’t cancel them. Another way your score is determined is by measuring the total debt that is available to you versus the total debt outstanding. A 30 percent, or lower, ratio is best. Those older cards not only keep that ratio lower, they also provide you with credit that has been established for a while, which helps your score versus establishing new debt.
What if you are just starting out and don’t have any credit cards? Try establishing credit in a small way, such as at a clothing store. Charge a small amount on the card, then pay it off when the bill comes in. Do that a couple of times, then try for a major credit card. Do this with caution, as it could be easy for you to get into debt that is unmanageable, and do more harm than good.
If you want to make a major purchase before your credit score allows you to, you may be able to get someone to co-sign for you. It may be difficult to find someone willing to do this, since the co-signer is on the hook for the debt if you do not pay it. If you do default on the loan, you will not only damage your credit rating, but even more important, you may also damage your relationship with a friend or family member. Most importantly, you will damage your witness. However, if you are able to get someone to help you, and you pay the debt in full, it is your credit that will benefit from it. So, before you make that purchase, be sure you can afford the payments.
Remember, a financial decision is a spiritual one. Place it in God’s hands as you make those decisions, and he will guide you to make the responsible choice.
Editor’s note: Rumbough, CPA, CFP, is vice president of finance, Baptist Foundation of South Carolina. If you have questions about gifts, call your CPA or the Baptist Foundation at (800) 723-7242.