Think back to when you loaned someone money. If they promptly paid you back, you felt good and chances are you would be willing to loan them money again in the future, upon request.
Now think about someone that you loaned money and never got it back, or had to repeatedly ask him or her to pay you back. Are you likely to lend them money again?
It is also important to note that having “no credit” may keep you from getting credit. In the event that a consumer has “no credit,” the person will have to build an “alternative credit” history. This may include things like rent payments receipts, telephone company bills, utility bills, etc.
A Note for Younger People. You should know that it is possible to generate negative credit report entries even before you reach the legal age of 18. If you borrow money, use a credit card, or even pay rent, your payment behavior can impact your credit at any age.
If you were a lender or the owner of a credit card company, think for a minute about lending money or extending credit to couple of your friends. If one friend promptly paid you back and the other friend was reluctant to pay, or never paid you back, which person (if you were a lender) would you charge more fees, or a higher interest rate, or perhaps deny providing a loan?
It is the same within the credit industry. If credit is extended to the “higher-risk” person, he or she is likely to be required to pay a higher interest rate, and/or extra fees, etc., to offset the increased risk of default or nonpayment. This is known as “risk-based” pricing.
The more you pay in interest and fees, the less money is left over for savings, investments, and purchasing things with cash. You could end up always being short of money and playing “catch-up,” juggling between payments on several bills.
Now think about someone that you loaned money and never got it back, or had to repeatedly ask him or her to pay you back. Are you likely to lend them money again?
It is also important to note that having “no credit” may keep you from getting credit. In the event that a consumer has “no credit,” the person will have to build an “alternative credit” history. This may include things like rent payments receipts, telephone company bills, utility bills, etc.
A Note for Younger People. You should know that it is possible to generate negative credit report entries even before you reach the legal age of 18. If you borrow money, use a credit card, or even pay rent, your payment behavior can impact your credit at any age.
If you were a lender or the owner of a credit card company, think for a minute about lending money or extending credit to couple of your friends. If one friend promptly paid you back and the other friend was reluctant to pay, or never paid you back, which person (if you were a lender) would you charge more fees, or a higher interest rate, or perhaps deny providing a loan?
It is the same within the credit industry. If credit is extended to the “higher-risk” person, he or she is likely to be required to pay a higher interest rate, and/or extra fees, etc., to offset the increased risk of default or nonpayment. This is known as “risk-based” pricing.
The more you pay in interest and fees, the less money is left over for savings, investments, and purchasing things with cash. You could end up always being short of money and playing “catch-up,” juggling between payments on several bills.
