As a snapshot of your financial life, your credit report may also indirectly predict your potential behaviors in other areas of your life. The fact that you have a history of making credit-card payments late may tell a prospective landlord that you’re likely to be late with your rent, too. A history of defaulted loans may suggest to a potential boss that you aren’t someone who follows through with commitments. If you’ve declared bankruptcy because your finances are out of control, perhaps you’re out of control in other ways, too.
This snapshot, which brings into focus the details of your spending and borrowing, and even suggests your personal life patterns, also paints a bigger picture of two important factors — characteristics that are critical to employers, landlords, lenders, and others. I cover these two critical characteristics in the following sections.
Your credit history is an indicator of whether you’re someone who follows through with commitments — a characteristic important to most people, whether they’re looking for a reliable worker, a responsible nanny, a dependable renter, or a faithful mate. Needless to say, a person or company considering lending you a sizeable sum of money will want to know the same.
Based in large part on your history of following through with your financial promises, you’ll be assigned a credit score. People with higher scores generally get the best terms, including lower interest rates and reduced minimum down payments. People with low credit scores can usually get credit in today’s economy, but they pay higher interest rates and possibly additional fees or insurance.
When it comes to your credit score, following through with your promises is only half of the game. The other half is doing it on time. It’s a fact in the lending business that the more overdue the payment, the more likely it will not be paid at all — or paid in full. This is why, as you get further behind in your payments, lenders become more anxious about collecting the amount you owe. In fact, if you’re sufficiently delinquent, the lender may want you to pay back the entire amount at once rather than as originally scheduled. (When it comes to money, your creditors’ faith in you is only 30 to 90 days long.) So, the longer you take to do what you promised, the more it costs you and the more damage you do to your credit score.
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