Credit is Making a Promise

What does a PROMISE mean to you?

Although this may seem like a very basic question, sometimes people think of a "promise" to pay back money borrowed differently than a "promise" to your best friend. But a promise to pay back money borrowed from a financial institution can have a more severe consequence to you personally if you breech that promise verses if you do not pay back your best friend. Your decisions to pay a bill or not impact your credit and many people don't understand how damaging those decisions can be.

In essence, when someone extends you a loan to buy a car, get a credit card, buy a house, or obtain some furniture, you enter into an agreement or "promise" with the lender. For example, if you borrow $3,000 to buy furniture for your house, you will pay at the average interest rate to the lender $150 a month until that loan is paid off. That is your "promise" to the lender.

Your credit report, and therefore your credit history, is a record of how well you keep your promises. This is like Santa's list of "who's been naughty and who is nice". This list doesn't disappear; it stays with you for life.

To have good credit you don't need to pay off your high balance immediately and you don't need to make twice your monthly payment every month. That's not what you promised - you merely promised that you would pay $150 a month until your loan was paid off, and every month that you keep that promise it reflects well on your credit report.

In review, what you did promise is that you would pay $150 a month, and that you would pay it ON TIME.

This is what you need to know to improve your credit -

1. You need to be able to keep your promises (make minimum monthly payments)
2. Make sure that you do so in a timely fashion (make the payments by the due date each month)
3. Maintain this positive promise-keeping behavior over the period of time.

If you follow these steps, over time your credit rating will improve to the point that you will easily obtain a mortgage on the house you want to buy. Your credit report is what all lenders use to decide if they will extend loans to you in the future, so this is what you need to focus on while keeping as positive as possible.

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