Reading this might be shocking at first.  A posting on the Internet dealing with credit that isn’t overgrown with ads and written in broken English!? Who would’ve thought!? 

 

Okay, so here’s lesson one: You need credit.  Good credit even.  Right away this strays from the sound advice given by some modern gurus, but remember they’re writing for a mainstream audience.  As a budding entrepreneur or musician/artist, there will come a time(or many) where you need to have immediate access to capital.  If you have some valuable assets such as a house or car, you can put them up as collateral –the bank keeps them if you don’t pay them back — but if you don’t, then you’ll need a good, established credit rating to get the funds you need.  Lets back up for minute though and cover the basics.

What is CREDIT?  Simply put: the odds that you’re going to repay the money you borrow.  We’ve all loaned money to friends before, even if just a couple bucks to cover a bar tab if our buddy is a little short.  Usually this isn’t a big deal and they help us out the next time, but we’ve all got that friend we loaned a few bucks to that never remembers to pay us back, right? Doesn’t take long before we stop lending his slack arse money!  Of course, you wouldn’t know the good ones from the bad ones unless you’d actually loaned them money….same thing goes for the bank.  That brings us to….

CREDIT RATING(aka CREDIT SCORE):  A number of years ago, someone came up with a formula to look at your borrowing habits and give relatively accurate odds of your ability and willingness to repay a debt.  They quantified this with a number which is now the well-know CREDIT SCORE or FICO score(named after the company that invented it, Fair Isaac and CO). Scores range from 300 to 850, and higher is better.  This gives lenders a quick way to decide what kind of risk you are and whether or not to loan you any money and what interest rate to charge if they do.  Wouldn’t it be great to have this for your friends?  To know how likely your new buddy is to ACTUALLY buy the next round?  Maybe one day they’ll have a way you can pull up your bud’s CREDIT BUREAU on your iphone when you’re deciding who gets the first round…

CREDIT BUREAU: These are services that keep a record of your borrowing habits over the past 7-10 years, and banks pay them every time they run a credit check on a prospective borrower.  The information contained in these reports is what FICO uses to generate your CREDIT SCORE.  Every loan you’ve ever taken out, credit card, etc., is recorded here for any lender to see should you wish to inquire about a loan.  Whether a flawless payment history or a couple credit cards you maxed out in college and tossed hoping they’d go away…Santa knows it…and so do these 3 guys.  The 3 main CREDIT BUREAUS in the United States are:

Equifax

Experian

TransUnion

In 2005, Federal Law was amended to allow consumers FREE access to 1 copy of each bureau’s report per 12 month period.  Of course you can always purchase a copy from the sites above, but if you want to see what every bank can see, the official site is www.annualcreditreport.com.  Beware of other imposter sites that subtly try to get you to purchase credit monitoring services in exchange for your free reports; stick to the official site unless you really want to buy what the other guys are selling.  In any case, everyone should keep an eye on their credit for a number of reasons, not the least of which is to watch out for identity theft and make sure the information is accurate.  Wouldn’t it suck to buy a car and pay extra each month because there was a mistake in one of these reports you didn’t know about?  It’s free and you can do it all online with a few clicks, so no excuses!

Click here for an article on establishing good credit, even if you have no credit or bad credit.

Click here for an article on how to deal with bad credit.