Understanding Credit

A good reason to build your credit is to have access to borrowing power when you need it. But borrowing money is a big decision. Here are key factors that you should consider, including what lenders are looking for and the costs involved with borrowing.

 

There are several situations in which borrowing may make sense. It may be a good idea if you can reduce the interest rate on existing debt or get a low-financing offer. If you're considering dipping into savings for a purchase, in some cases it may be smarter to keep that cash cushion and borrow instead. And if a loan helps you reach goals that are important to you, such as buying a home or paying for an education, borrowing may be well worth it. Learn more about how to figure out if borrowing is the right move.

 

When lenders review your application, they're evaluating it based on the "5 Cs": Credit history, capacity, collateral, capital, and conditions. Lenders typically like to see that you've borrowed and paid back money before and that you have the ability to pay back the loan. They may also want to see that you have enough assets to cover the loan in case you don't pay it back. Explore the details of what lenders look for.

 

Understanding how credit works comes in handy when you need to borrow. Additionally, it's important to be aware of the full cost of the loan — not just the monthly payment. There are four key factors, which are all connected: the loan amount, interest rate, term and fees. Learn more about the total of cost of borrowing.