Are you Prepared to Borrow?

An educated borrower is a prepared borrower. That education covers not only how credit works, but also what loan options are available and which lender is right for you. Borrowing wisely also means knowing the potential challenges you face when you use credit and how to resolve them.

Here's an overview of some of the important areas you should be familiar with:

• One of the major factors in qualifying for credit and being offered the lowest interest rates is having a strong credit history that's reflected by a high credit score. Making at least the minimum payments due on all your bills on time, keeping outstanding balances low, and not borrowing more than you need are three ways to raise your credit score or keep it high. To do this, you'll want to use no more than 50% of your available credit, though keeping your balances to 30% is even better.
• Credit is something you shop for by comparing costs, as you would any large purchase. Lenders may charge different rates, so you may be able to borrow for less by shopping around. Be cautious though about how often you apply for credit, since too many applications (or credit inquiries) can hurt your credit score.
• Most but not all lenders are reputable. Some charge you more to borrow than the rate you legitimately qualify for. If you have checked your credit report and credit score and know you have a strong credit history, you should ask potential lenders if you're being quoted the rate available for their most creditworthy customers—and if not, why not.
  
• Credit trouble doesn't just happen. It follows a series of warning signs you should learn to recognize. If you acknowledge them soon enough, you may be able to fix them by changing the way you're using credit.
• If you run into credit trouble and need help managing your budget or resolving your debts, don't hesitate to seek professional help through your financial institution, professional advisers or other trusted third parties. Here's a partial list of resources:
• The Association of Independent Consumer Credit Counseling Agencies (AICCCA) at www.aiccca.org or 866-703-8787
• The National Foundation for Credit Counseling (NFCC) at www.nfcc.org or 800-388-2227

For many people, using credit is convenient and can play an important role in financing the purchase of their homes, cars and other large items. Using credit wisely, however, takes some effort. You can begin by creating a spending plan and sticking to it, so that credit serves your needs. You can work on building and maintaining a strong credit history and keep your eye on your credit report to catch any mistakes or problems. You can be sure to comparison shop when choosing a lender who will be your partner in putting credit to good use. And you can always ensure you know what you're signing when you agree to borrow.