Managing Credit

Borrowing – Establishing and Maintaining Credit

Credit is the ability for you to “Borrow” money with the agreement that you will pay the lender (creditor) back at a pre-determined time. Your credit score is a personal rating that is assigned to you by the credit reporting agency. Your credit score reflects how much money you owe, how often you use credit and whether you pay your bills on time.

Your credit score is dependent on how all transactions involving your credit were handled. Late payments, high credit card balances and multiple applications for credit can have an adverse impact on your credit score. When you make your payments on-time, keep low balances on your credit cards, and apply for credit only when needed, your credit score will increase. Your lender uses your credit score to determine whether or not you qualify for a loan, and on what terms. Your credit score is the key component to ensuring that you get fair interest rates on car loans, home loans and other lines of credit.

When you have good credit history, it appears on your credit report for four years; negative credit history stays on your credit report for seven years. Transactions involving bankruptcy and foreclosures can stay on your credit for up to ten years. If you’re not eligible for a loan because of your credit score you may be required to find a qualified co-signer. A co-signer is someone who is willing to pay your loan in the event that you can’t pay.

Your credit history affects more than your ability to borrow. These days, your credit score is used to determine your car insurance premium, whether or not you will need to pay a deposit on utilities, and in many cases it can have an impact on college and employment applications. That’s why it’s so important that you monitor your credit score and make sure that you manage your financial obligations responsibly.

Borrowing – How to Check Your Credit

By law, as a Colorado resident, you are entitled to receive one free copy of your credit report from each of the three credit reporting agencies, Experian, Equifax, and Transunion. A free copy of your credit report is available online at, by calling 1-877-322-8228, or you may download the request form and mail it to the appropriate address.

A consumer also has the right to a copy of a free credit report under the following circumstances:

  • A denial of credit or another adverse action was taken based on information in your credit report within the past 60 days
  • You are unemployed and will be seeking work within the next 60 days
  • The report contains errors because of fraud (one free copy every 12-month period)
  • You are receiving public assistance (one free copy every 12-month period)
  • The report has been revised after the completion of an investigation requested by the consumer

A consumer can also request a copy of a credit report by paying a fee to the credit bureau. Your free credit report will not display your credit score. You should go through your report to check for discrepancies, errors, and/or fraudulent accounts. If there are errors on your credit report, you have the right to dispute those items through the credit reporting agency.

Borrowing – How to Rebuild Your Credit

There certainly are ways to rebuild your credit if you’re suffering from bad credit, but it’s not easy. The first and most important step to rebuilding credit is paying off any outstanding debts that you may have incurred. The next step is making sure that payments on new debts are made on-time. You should keep your unsecured debt as low as possible. Unsecured debt is debt that is not secured by collateral, such as credit cards or personal loans. High unsecured debt will have a negative effect on your credit score.

You should only apply for credit when it is absolutely necessary. Each time you apply for credit, your score is lowered by about 4 points. Some credit card companies and department stores offer freebies or special discounts when you apply for their cards, you should weigh the impact on your credit score before submitting an application.

Beware of companies who charge large fees to manage your debt or “repair” your credit. These companies often make the situation worse by collecting their fees out of your debt management payments. Regardless of their promises, they do not have the power to remove accurate information from your credit report.

Borrowing – How to Figure How Much House You Can Afford

- By *Cait Klein, NerdWallet

It’s easy to get carried away searching for the perfect place to call home — lured by the grandeur of granite countertops and stainless-steel appliances, not to mention a fenced yard. But splurging an extra $10,000 or more for something “perfect” can end up costing much more when mortgage interest is included. Here are a few questions to ask yourself to ensure that you don’t commit to a place you really can’t afford.

1. What’s the monthly payment?

A lot goes into your monthly housing payment. In addition to the principal and interest on the mortgage, there’s also property taxes, any association or condo fees and hazard insurance. You’ll also need to add the cost of private mortgage insurance, or PMI, if you put down less than 20% of the price in cash. PMI protects the lender against a default on the loan. So while a particular home may seem to be in your price range, when all the rest is added in, it may not be a realistic place for you.

2. How much can I afford?

Lenders like Aurora Schools Federal Credit Union say housing shouldn’t cost you more each month than 29% of your pre-tax income, including mortgage, taxes and insurance. It’s important to make a budget to ensure that owning a home won’t overwhelm your finances. And remember that this percentage doesn’t include any repairs or maintenance, so it’s a good idea to start an emergency home savings account to be prepared.

3. What’s my credit score?

Your credit plays a huge role in what mortgage interest rate you’ll qualify for, and that makes a big difference on what you can afford. The lower the interest rate, the more money you can borrow for the same monthly payment. One of the biggest factors involved is your credit score. If your FICO credit score is lower than 740 or so, there may be ways to boost it before seeking a home loan. Start with checking your credit history. You’re entitled to one free copy of your credit report annually from each of the three major reporting companies, but there may be a fee to get your score. Examine the report closely to spot any errors, and contact the reporting company to get mistakes fixed. There are other steps you can take to raise your score, but it takes time.

Buying a home should be fun. Just make sure you don’t buy out of your league. You wouldn’t want to get into the perfect house without any cash left over to furnish it.

*This article was written by Cait Klein from NerdWallet.