Proper use of credit is one of the cornerstones of a financially secure life. Having good credit saves a person money through access to lower interest rates, better financing terms and easier access to cash in emergencies. It takes a while to build good credit and it takes discipline to manage it, but the benefits make it worthwhile.
Good Uses of Credit
Credit is not a good or bad thing by itself. It can lead to financial ruin or it can lead to the fulfillment of a person's dreams. It all depends on how it is used. Buying a house, a car, or expanding a business are all responsible ways a person can use credit. Using credit to buy assets that will either appreciate in value or allow a person to generate money is a good way to build wealth, assuming the person does not become over-leveraged.
Bad Uses of Credit
When people use their credit cards on shopping sprees, the latest in technology, or on lavish vacations they can't afford then credit has negative repercussions. Racking up huge credit card debt on consumable items will leave a person with a lot of high interest debt and nothing to show for it. Financial ruin is often the result.
Building Credit
Most people begin building credit when they sign their first cellphone contract and get their first credit card. By paying the monthly cellphone bill on time and in full every month and by charging a few things on the credit card and then paying off the full balance each month, a good credit history slowly accumulates. Later on, the college student will get their first apartment and start paying those bills on a monthly basis. Further down the road, they will pick up a car and house payment. After a couple years of paying all of those bills on time the person will have a strong credit history.
Repairing Credit
Not everyone has been responsible with their credit. They haven't spent years paying their bills on time and not taking on more debt than they can afford. The good news is that it is never too late to start building good credit. The first step to take is to pay off or consolidate all except one or two credit cards, starting first with the cards that have the highest interest rates. The next step is to close every credit card account besides the one or two that balances were consolidated on. After that, strict attention must be paid to making at least the monthly minimum payment so no late fees or financing charges are assessed. If only the minimum monthly payment is made, it will take many years to eliminate the debt. The important thing is to pay it down as much as possible after paying every bill that is due on time. A person's credit will start to improve once they build a history of not missing payments and having access to credit lines that are not maxed out.
Managing Credit
Managing credit expertly requires establishing a budget, having the discipline to follow the budget and living within your means. By forgoing instant gratification and not buying anything you can't afford, you will end up in a more secure financial position.
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