It is a necessary evil. If and when you decide to buy a house, you will have to have a track record of good credit for a number of years. And with all the sub-prime mortgage loans going under, mortgage bankers are scrutinizing applications with a fine tooth comb.

If you have never had a credit card, get a secured card – meaning you have to deposit the money first and then you will be able to access it. Make some small purchases, pay on time, and add some more money to you account. Once you have done this for at least a year, apply for a ‘regular” credit card. Don’t worry about the size of the limit. It may only be for a few hundred dollars.

Continue to make small purchases and pay on time. You can even pay the minimum amount once in a while. Just don’t make any late payments. Doing this will establish a pattern of on-time payments. Once you have created this history of making your payments on-time, you will find it easier to apply for that home loan.

Applying for credit used to mean asking your neighborhood banker for a loan. Now, with national credit cards and computerized applications, the day of personal evaluations may be over. Instead, computer evaluations look at, among other things, your income, payment history, credit card accounts, and any outstanding balances. Paying in cash and in full may be sound financial advice, but they won’t give you a payment history that helps you get credit.

A major indicator of your ability to repay a loan is your current income. Those who consider income must include types of income that are likely to be received by older consumers. This includes salaries from part-time employment, Social Security, pensions, and other retirement benefits.
You also may want to tell creditors about assets or other sources of income, such as your home, additional real estate, savings and checking accounts, money market funds, certificates of deposit, and stocks and bonds.

If you’re age 62 or over, you have certain other protections. You can’t be denied credit because credit-related insurance is not available based on your age. Credit insurance pays off the creditor if you should die or become disabled.
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Paying your loan is like renting equipments.

You see, interest rate is like the rent cost of money. It’s like you are employing someone else’s money and you have to pay that money salary. In money, the money’s salary is often stated in terms of the ratio between money borrowed and how much you have to pay for borrowing such money. That ratio is called interest rate.

For example, if you borrow $10,000 and you have to pay $3,000 per year for not paying that $10,000 then your interest rate is $2,000/$10,000=30%. Simple?

That’s assuming that the money you borrow is constant, namely $10,000. If you don’t pay your interests, then the $3,000 is added to your loan. So next year, you owe $13,000. Two years from now, you’ll owe $16,900. Got it? In Math, few functions increase faster than exponential function, and this is one of it.

If you borrow some money at 30% interest rate from a credit card company and 9.9% interest rate from your mortgage, then you are paying more money for your credit card company for every unpaid dollar loan.
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Paying your loan is like renting equipments.

You see, interest rate is like the rent cost of money. It’s like you are employing someone else’s money and you have to pay that money salary. In money, the money’s salary is often stated in terms of the ratio between money borrowed and how much you have to pay for borrowing such money. That ratio is called interest rate.

For example, if you borrow $10,000 and you have to pay $3,000 per year for not paying that $10,000 then your interest rate is $2,000/$10,000=30%. Simple?

That’s assuming that the money you borrow is constant, namely $10,000. If you don’t pay your interests, then the $3,000 is added to your loan. So next year, you owe $13,000. Two years from now, you’ll owe $16,900. Got it? In Math, few functions increase faster than exponential function, and this is one of it.

If you borrow some money at 30% interest rate from a credit card company and 9.9% interest rate from your mortgage, then you are paying more money for your credit card company for every unpaid dollar loan.

Each dollar from a credit card company costs 30 cents per year, while each dollar from your mortgage costs 9.9 cents per year.
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Do some online research about borrowing or taking out a loan from your 401(K) plan and you will see about 99% of the sites you visit will tell you to never borrow money from your pension.

So, why did I borrow from mine? I will tell you.

First, mine is not a 401(K). It is similar and called a TSP – Thrift Savings Plan. It is run by the US Government and is one of the largest pension plans in the world.

I wanted to invest in some property and looked at my options. My first option was a home equity line of credit. I have a condo now for about 20 years so I have some equity in it. My credit is good, and it was an easy acceptance from the lender.

The problems were the fees and interest rate.

The interest rate was actually decent but the fees were in the thousands of dollars.

I looked for an alternative and found that I could borrow from myself. So here are the reasons I took out a loan from my pension fund.
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