What is credit anyway? Before I go into the hows and whys of life-changing good credit. I first want to address what credit is. Credit is money that has been borrowed from a lender to you to buy goods and services. The goal is for you to pay them back the amount owed, plus the interest that was issued to you–by doing this establishes your credit life-line. For instance lets say you signed up for a Discover credit card because you wanted to establish credit to buy your dream house. After signing up, you then need to buy, then repay the amount back at the due date of your payment agreement.
Why is it important to have good credit? Good credit helps with your approval odds to buy houses and rental properties, helps with lower interest rates (APR) on small business loans, and decreases odds for credit card rejection. Ultimately, having good credit proves that you are responsible and effective enough to pay bills on time.
The opposing end of good credit is bad credit. Bad credit increases your interest rates (APR) on car loans. It may deny you of any possibility to get approved for your dream car or home. Therefore boosting your credit card APR; and it could likely deny you of anymore credit cards in your name. Bad credit is not a good place to be in. Especially for creatives who plan to start their own successful businesses. Money loans for small or large businesses will always be needed. This way their performing at their best ability for their present and future customers. There will be a scarcity of loans that will be available to them due to their high debt and bad credit score. Even if they did get approved, their funds could be decreased with unbelievable higher interest rates making it harder for them to manage a reasonable repayment plan.
Get and keep good credit:
Don’t use credit card unless it’s an Emergency
Let’s face it things happen. Sometimes we won’t always have the financial resources to get that new tire we need right away. Using your credit card for 911 emergencies are great ways to keep your balance down while helping you be allotted cash right away. When it comes to emergencies credit cards is an awesome vehicle to use when in doubt. You’ll be happy you didn’t go shopping when things that are out of your control happen.
Keep Utilization limit below 30%
By keeping your credit card balance under 30 percent it heightens your changes to maintain good or excellent credit. Multiply your total balance by .30%. For instance, lets say your total balance is 1,000 dollars; try to not to go over the $300 mark. If you do, make arrangements to pay off more before your payment is due. This creates healthy habits that potential lenders look for if you were to buy or rent a house. The best ways to maintain good credit is being responsible, so if you have trouble with payments you can always utilize AutoPay.
Don’t use it, unless you have the cash to pay right-off
Many smart money veterans use this method. I find it quite genius. This method allows you to only use your credit card when you have the available funds to pay it off. By using this method, you’ll always be aware of what you owe. There won’t be any hassle or stress over when or how you will come up with the money to pay your bill. Reimbursing your credit bill shows a high level of responsibility and maturity. YES! You’ll be at that 780 credit score in no time!
Pay more, when less is due
I said it once, I’ll say it again. But when you pay more when less is due it decreases your interest rate exponentially. For more on this subject, check out my previous article: In your 20s, less clubbing, more saving (My 3 Step Formula to Saving with a Plan)
Routine is fundamental, so PAY ON TIME
Whether it’s a school loan, credit card loan, or car loan. Paying your bills on time has many advantages. The biggest pay-off is a peace of mind. Knowing that you owe anyone can add stress that no one needs. So when you have it pay on time, and add a little extra for a rainy day. *The weather report is..*