How Personal Credit Works

Most people don’t spend much time thinking about interest rates, cost of funds, charge offs and all the other technical terms that go into lending. But they are deeply affected by these concepts when they need to borrow money. FinTech lenders, banks, credit unions, credit card issuers and other moneylenders think about these terms all day. And they make their decisions to approve your credit or decline your credit based on them.

In my 30 years in and around the finance business, I’ve spoken to hundreds of smart people who know a ton about nursing or manufacturing, or truck driving, or fixing cars or teaching or being a first responder – but are really in the dark when it comes to lending and borrowing. The problem is that these folks often make some bad decisions when it comes to credit. And those bad decisions end up costing them big time.

So in this series, we will talk about some of the questions I’ve been asked the most. My hope is to provide a straightforward, easy-to-understand guide to some of the facts about the personal credit market. Some of the questions I’ll try to answer are:

• What Does My Credit Score Mean?
• Why Do Some Folks Pay More to Borrow the Same Amount For the Same Time?
• How do Finance Companies set Interest Rates?
• How do Finance Companies Decide Who to Approve and Who to Decline?
• What is Compound Interest?
• What is Pre-Computed Interest?
• What is Simple Interest?
• Why is Paying Down my Credit Cards So Important?

We will probably have other questions come up along the way, and we will try to answer those as well. I might even ask some other “financial professionals” to offer their views. As always, your feedback and comments are very appreciated. I will publish this series on the LendingPoint web page www.LendingPoint.com as well as on the LendingPoint Facebook page. Hope you find it helpful!

Post written by Mark Lorimer: “Full disclosure: When I say I’ve been “in and around the finance business” I mean I have been a corporate lawyer (currently in recovery), a Public Company CEO, a private investor, and I was the CMO at CAN Capital from 2006-2012 (where I also led the teams responsible for Asset Management, Revenue Speed, Collections and Legal Collections). Currently, I serve as the CMO of LendingPoint. All opinions expressed are mine, and do not reflect the opinions of LendingPoint.”