Things To Consider Today

Use Credit Wisely   

Most people recognize that credit is something that plays an important role in their lives. They want to establish a good credit rating in order to get bank loans for things like a car, a mortgage to buy a home, or money to start a business. They also want credit cards to purchase all the products and services they use. Credit allows consumer spending by all of us to be much higher than it would be without the use of credit. In this sense credit can be a very positive thing and helpful in obtaining what we want.

For many years it has been easy to obtain credit. Easy credit leads to more consumer spending, which accounts for about two-thirds of our economy. One result of this easier or expanded credit is very visible. As you drive down the road, what do you see in the garages of so many homes? An empty garage so cars can park in it, or a garage full of lots of junk? When you actually go inside the homes of people, are they spacious and uncluttered, or full of too many items? Have you noticed the large number of businesses today that offer storage units? What is put in these units other than additional material goods that we aren’t using or in many cases don’t need. How did we get along in the past without so many storage units? The answer is we didn’t buy as many things per person, and fewer families had toys like campers and boats that needed to be stored someplace. Related to all our stuff is the growing used items or secondhand business. These organizations or businesses are doing better than ever before. It’s good that products are being recycled from the original buyer to a secondhand buyer, but it also represents just how much we’re buying and then giving up without wearing something out or waiting till it breaks down.

Besides easy credit, credit data on you is more widely available than ever before. This is true not only between banks and credit card companies, but businesses who want to sell you items. You become part of a targeted audience in a marketing campaign trying to get you buy more now and pay for it in the future. If you have decent credit, you receive many offers for credit cards and bank loans. This is besides the offers by local merchants to buy now and have no payments for many months. Resist these offers as much as you can do. Accept only a limited number of them which offer you the best deal. Look for offers with a fixed interest rate and not a variable one.

Credit cards deserve special attention. Their rules are revised over a period of time to work in favor of the credit card company. They are almost an unregulated business in my country, the United States. This is only one reason why the interest rates and fees are much higher today than many years ago. Their goal for you is to have an outstanding balance that you don’t pay off in a 30 day period. The balance continues to the next 30 day period and hopefully you’ll buy other things which add to your balance. Over the months your balance gets bigger, and to accommodate you, they increase your credit line limit or the maximum amount you can charge. What you end up with ultimately is a larger monthly bill, at a higher rate of interest, for a credit card that is never paid off. Over the years the amount of interest you pay compared to principle is astounding.

In recent years there have been negative credit trends relative to housing. One has been the use of no money down mortgages for home purchases. Low interest adjustable rate mortgages have been popular too. Eventually, the monthly payment must increase and this is where home buyers get into problems. If there are declines in home values, the problem is even worse. Related to these mortgage practices has been the expanded use of equity loans on the amount of money a person has in his home. What you end up with is too many homeowners with little equity in their homes. This makes it easier to default on a loan or simply walk away from a house.

In general, easy credit encourages us to buy not only what we need, but everything we want at the time we desire it. The problem with all this comes when you have to pay the bill. Assuming you remain healthy, continue to have your job or a source of income, and your house maintains its value, then at least you have a chance to keep up with your debts which accumulated through a lot of credit purchases or loans. However, if things began to go wrong in the economy or workplace or real estate market, problems can occur that affect you and your checkbook. It’s easy to find yourself in a position without sufficient funds to pay all your bills. The number of people in this situation who have been missing payments on credit cards, equity credit lines, mortgages, and car loans has been on the rise.

The first thing each of us must realize is we don’t know our future. Therefore, we should strive to live within our means and not overspend. Something could happen that would lower our income and/or devalue our property and put us in a financial bind. For this reason, we should have some savings and definitely limit the use of credit for only things that we need and not for everything we want. This calls for sacrifice, or going without for a period of time, or waiting until you can pay for something with part cash and part credit, or in some cases waiting until you can pay for it by cash. In some cases you simply should go without.

Strive to let credit help you get the things you really need today, rather than the things you want. A good example is obtaining college loans to get an education to earn a higher income. This is using credit wisely because you’re putting yourself in a position eventually to earn more money and get a good return on the money you borrowed. However, buying new clothes every year to keep up with the latest fashions is not necessary. Charging these clothes and having a continual bill or a larger bill from year to year for clothing is not wise use of credit. The same thing goes for a car. You need transportation, but do you need a new car or would an older one be satisfactory? These types of decisions made by each of us, will influence over time how we use credit and how much it affects our life in a positive or negative way. It’s always best to be conservative in borrowing money and very responsible and timely in paying it back.

Establish and maintain a good credit rating. You can easily obtain free copies of your credit report from more than one credit agency. Check it for errors and omissions and then correct the report so your score will be raised. Another way to raise your score is by making regular payments on time over the years. A higher credit score allows you to get money faster, easier, and at a lower rate of interest. This will save you money over a period of time. You’ll have more credit options and be able to take advantage of good deals or real opportunities when they come your way.

Always remember this reality in the money game today. It’s hard to get a loan or mortgage just because you know somebody or they trust you. You are viewed as a consumer with a credit rating, an income, a list of current expenses, and a financial history. Presume that a computer will initially judge you, not a human being who knows you, or cares about you, or would help you if he could. This is a better way of looking at obtaining credit. If you meet all the basic criteria, the computer says yes and the loan or mortgage goes through. If you don’t, the computer says no and usually your request is rejected. It may say you can get money, but not on very favorable terms for you or the terms that you originally requested. This is not the best deal either. In some cases the financial institution employee may have some latitude to influence the final decision and terms of the loan in your favor, but don’t count on this. You should not be naive about what or who you’re dealing with in the financial world today. That computer could care less about how much more you deserve help than the guy who lives across the street from you. So strive to put everything in your favor and then you’ll find that the financial world will work much more for you and give you what you want.

We should all strive to control spending, rely less on easy credit, and avoid the accumulation of so much junk. There will be less pressure on you for obtaining money both now and in the future. There will be less chance of missing payments or defaulting on a loan. There will be less possibility that you’ll declare bankruptcy, which is becoming more common in recent years, even though legislation has put more restrictions on this.

To avoid problems, let the credit available to you, rather than your credit bills, affect you and your future income. Weigh out carefully your needs versus wants, and the amount of risks you can take in a responsible manner on future earnings and income. Then carefully utilize credit in a wise manner. If something does come up in the future that is unexpected and affects you in a negative way financially, be prepared to cut back your expenses or lower your standard of living for a period of time to put your income more in harmony with your expenses. In other words, sacrifice and go without a little to recover from financial problems until you can get back on your feet with your money. Some people will simply not go without nor cut back. They will walk away from a home, and give back a car, and even declare bankruptcy.

Hopefully, you’ll be the individual whose life is not adversely affected by poor credit, but served by good credit. You understand the rules of the credit game and use them to get what you need more than what you want. Credit is a tool and you’re very skilled in using it. You are wise and know how to use credit so as not to be trapped in the future by unwise decisions today. You review your credit report periodically, and keep on top of your credit situation. In these ways you‘re able to stay ahead of the game and get the most for your dollar.

Good luck in your seeking of credit and using it wisely.

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Copyright  2008     Leland Pulley