Q. What advice does BBB have for establishing credit and borrowing money?
A. Better Business Bureau Serving Southeast Tennessee and Northwest Georgia reminds consumers that there are steps to take to optimize chances for success and minimizing problems when trying establishing credit or to borrow money to purchase a home, car, major appliances, an education or even a vacation.
Taking out a loan is a big commitment that requires responsibility, which is why it is crucial to do extensive research. Use these tips as a guide when taking out a loan.
' Do your research. Before you even start applying for a loan it is important to get the facts. Compare the annual percentage rates and the total amount repayable from the lenders you are considering.
Be aware that each time you apply for a loan, there is a note left on your credit score. Lenders can see if you have multiple loan applications when viewing your credit score, which may give the impression that you are unreliable.
' Maintain a good credit score. If you are not confident about your credit score, try to build your credit rating before you apply for a loan. Charge small purchases that you are positive you will be able to pay off at the end of the month. Using your credit card will improve your credit score if you use it responsibly.
' Get a fixed interest rate loan. By getting a loan with a fixed interest rate, the lender will not be able to raise the interest rate throughout the loan. When you are locked into a fixed rate, you are protected against fluctuations in the economy when most lenders raise interest rates. If the interest rates decrease below your fixed interest rate, you can look into refinancing as an option to pay a lower interest rate.
' Know your budget. Only take out a loan for as much as you need, even if the lender is offering to loan you a greater amount of money. Taking a greater loan can lead to overwhelming debt in the future. Analyze your budget and calculate the monthly payments you will be able to afford. Do not take out a loan for more than you can afford. Avoid taking out multiple loans, this can cause pressure to make the payments and rack up a large amount of debt.
' Pay off the loan early. If you are able, pay off the loan early. By paying in a shorter period of time, you will clear your debt and decrease the amount of interest you will pay over time. Make sure the lender does not charge a fee for an early payment of the loan.
' Carefully read the contract. Before signing anything it is crucial to carefully and thoroughly read the document. Ask questions to understand all the details of the loan contract. Make sure you understand the costs, charges and fees, and the terms and conditions of the loan.
Jim Winsett is president of the Better Business Bureau in Chattanooga.