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Whenever you apply for any type of credit ?a loan, charge card, a mortgage ?the lender will want to know if you are creditworthy. That is, are you willing and able to repay the loan? Are you a good risk? To determine your creditworthiness, a creditor usually looks at three factors:
Capacity
Your ability (present and future) to meet your financial obligations. Do you have a steady job? How long have you worked? How much do you already owe?
Capital
Your savings and other assets, which can be used as collateral for loans. Even if you are not required to post collateral, many creditors prefer that you have assets other than income that could be used to repay the loan.
Character
How trustworthy you are. How prompt have you been about paying other credit obligations, rent, and telephone and utility bills? Is your credit record good? Do you appear to be willing to repay?
If you have borrowed before and have a good repayment record, you at least have something to show the creditor to help convince him or her that you're a good risk. But what if you have never borrowed? Then you need to begin to build your credit record. You can start by applying for a small loan at the financial institution where you regularly transact business, being sure to make payments on time. Open a charge account at one or two local department stores and show that you can handle them responsibly. Establishing a good credit history takes time and effort, so try not to get discouraged if it's difficult at first.
Carefully planning your use of credit is as important as carefully planning your road trip.
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