Let’s talk about credit.
First, loans / credit cards are when you use someone’s else’s money (borrowing). You are receiving goods or services now that you have agreed to pay for later (either in full or with a series of payments). This will help you to establish or re-establish your credit. This is different from a debit card, which is using your own money and not building your credit.
Now that we have that straight, credit is an extremely important part of your finances. It gives you that ability to purchase goods or services when you need it and pay for it later. Sometimes life requires you to make a purchase now (even when you don’t have the funds of your own to do it now). Last month, I came home from work to find our smoke and carbon monoxide detectors beeping – not a good thing. It wasn’t the batteries, which meant it had been 10 years since we replaced them. Ugh! There was an immediate need to have the electrician come and replace all 11 smokes and carbon monoxide detectors now. It wasn’t something we planned on in our July budget, but it needed to be done now. That’s where credit comes in. They were replaced and we will pay the bill in August.
Credit is something you will find you need in your life, whether it be for emergencies or planned purchases. Having good credit will be an asset to you in your time of need. Having good credit will give you more favorable terms (lower interest rate) for your repayment terms. The higher your credit, score the better chances of getting credit at the best terms. Putting it a different way, your credit score is as important to your finances as your GPA is to getting into college – both numbers are an important in your life.
To have the best credit, you need to use it but not abuse it. It’s easier said than done. You need to use your credit and make purchases as needed, but only purchase what you can afford. You need to make your payments on time and not max out your debt.
In my next newsletter, I’ll talk about credit and some frequently asked questions.