Your Credit Reputation Matters

If you ever want to buy something on credit, how you’ve handled borrowing in the past matters.

At some point, you may need or want to buy something on credit. It’s not always feasible to save up ahead of time and pay for a major purchase like a home or a car out of pocket. This is where your credit reputation comes into play. Simply put, your credit reputation is a public-facing set of information on how you’ve handled borrowing money in the past.

The Impact of Credit Reputation

Responsible use of credit can demonstrate trustworthy financial behavior which can help you build a positive credit reputation. For example, would you lend money to someone if they’ve borrowed from you before and didn’t pay you back? Probably not. If, on the other hand, you loaned money to someone and they paid you back as agreed, you’d be more likely to trust them and lend them money again in the future.

Lenders are no different. If you have a poor or non-existent credit reputation, they may not be willing to lend to you. Or, if they do, they may charge you a higher interest rate than someone who has a better credit reputation.

The example below demonstrates the financial impact this can have.

Good Credit vs. Poor or No Credit

Jeff and John are both buying a preowned car with a purchase price of $15,000 with a loan term of five years. See how their credit reputation affects their interest payments.