Opinion: Credit Lies

Summer Snell, Staff Reporter

otterrealm@csumb.edu

May 6, 2008

Credit is a very important aspect in a financially stable person’s life.  Many people think that credit is a bad thing and that owning credit cards is one of the worse things one can do.  But in reality it is quite the contrary.  I am going to take a quick look in the meaning and establishment of ones credit to better educate the benefits of your credit score.

One’s credit also known as your FICO score can establish many things.  It can save you hundreds of thousands of dollars when it comes to a line of credit that is being loaned to you when you apply for a car, a mortgage, or even a student loan.  The better your score the decrease in the annual percentage rate and the overall fees that you will have to pay back in the long run.

I often hear my friends say that they cannot afford to open another credit card or apply for a loan because they already have too many.  The word many that they refer to is often less than two.  Like all things in life, your credit and the debt you owe should also be done in moderation.  You must learn to balance your finances so that you do not owe large amounts such as for a loan or credit card.  Adding the percentage of how much you owe on your line of credit compared to the full loan amount derives the calculations for your credit score.  So naturally you would actually want to owe a little amount and have more lines of credit than owe large amounts on just one or two cards or loans.

You also want to make sure that you are paying the minimum payment each month, and on time, this is crucial for establishing your credit with the loan company and not jeopardize your interest rate into another higher bracket of rates and fees.  Ultimately, not making the payments or not making them on time could cost you lots of money and forfeit that once established “healthy” credit score.

For someone that is just establishing credit the easiest place to get it would be from a retailer, such as Macy’s or Target.  These companies’ take a risk on your credit score and therefore have a higher percentage rate, but usually have lower credit qualifications when applying.  As long as you make your payments on time you will see a decrease in your annual percentage rate for the loan within the year and will then be able to apply for other loans then that your credit has been established.

Remember, it is a lot harder to improve your credit than it is to ruin it.  One small mistake can cost you hundreds of dollars later in your life.  So think wisely, do not apply for too much credit in a short period of time and limit the amount you spend on each card.  Do not forget to send the minimum in on time each month and when ever possible pay off large amounts at a time.  Credit could be your best friend, if used properly.  There are a lot of books and guidance workshops creeping up all over our nation, with the financial recession your credit might be the best thing to have in your pocket and on your side, hopefully this insight will encourage you to learn more and start building your credit today.