To build financial trust or credit you need to understand how the credit puzzle fits together. The creditor, the one loaning you the money, looks at most or all of these pieces before granting credit to you. Therefore knowing all the pieces before you start to use credit will be the key to becoming credit savvy.



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To build credit trust you have to understand how the credit puzzle fits together. The creditor, the one loaning you the money, looks at most or all of these pieces before granting loan to you. Therefore knowing all the pieces before you begin to use credit will be the key to becoming credit savvy.

Income is money that you are earning or the allowance you are given now. When you are extended credit, the creditor needs to understand if you have the financial capability to meet the credit payment schedule. The amount of income needed for a loan depends on the amount and type of the credit. For example, if you are borrowing money for a house most creditors will require that your monthly payments not exceed 30% to 50% of your income.

For credit purposes, character is measured by how you pay previous loans. This information is available through credit agancies. There are three major consumer credit reporting companies in the United States of America: Equifax, Experian and TransUnion. Creditors report the payment history of their loans to these credit reporting companies. The credit reporting agencies also collect information about other debts you have (cell phone bills, student loans, business line of credit, medicine bills etc). If you have your car repossessed, your homes foreclosed, bounced checks, unpaid bills, or file a bankruptcy then this information is also reported in the credit report. The information in your credit report is generally kept on file for five to ten years.

Stability is an estimate of how much your financial situation may change during the term of the credit. If your employment is unsteady or unlikely to continue, then the creditor may have concerns about your ability to meet loan payments on time. If your expenses will be increasing or your debts are expected to grow in the near future, then the creditor may also have concerns about your ability to meet credit payments.

Debts are how much money you currently owe other creditors. This includes credit cards, car loans, home loans, school loans, some bills, and all other lines of credit. If you have lots of other loans or a high amount of outstanding debts then a creditor may have concerns. Most creditors have debt guidelines for different types of loans.

For example if your total current credit card debt exceeds 30% total income then you may be considered to have a maximum amount of credit card debt. For a home loan the maximum amount of debt could be as high as 200% to 300% of your total income.

Assets are how much money or value you have on hand. Assets include cash in the bank, savings accounts, certificates of deposit, bonds, stocks, etc. Assets also include cars, motorcycles, a house, or other valuable stuff. Creditors consider assets a safety net for a loan. In some cases creditors will require a certain asset to be listed as security for a loan. This is almost always true for car and home loans. However if a creditor determines you have sufficient assets to fall back on, then they feel more comfortable making a loan.

Expenses are the total of the bills you pay monthly or regularly. Expenses include regular costs for food, rooming, electricity, water, sewer, insurance, tuition, books, car gas, etc. Creditors need to be sure you have enough money left over each month after your expenses to make your loan payments.