Credit is a hot topic among even the most well-known finance experts. Some, such as Dave Ramsy, believe that credit is something that we should all stay away from. He believes it creates bigger issues like spending more. His belief is that we can live without taking out a single cent of debt if we make smart financial choices on the front end. While these are all true statements, there are benefits of having credit cards, debt, and a credit score. Like anything else, any good thing can also be a bad thing if misused or abused. This is more than accurate with the overarching topic of credit. Credit cards, debt, and credit scores can be extremely detrimental and should be treated with great caution and understanding of what the consequences will be if used incorrectly. Yet, if these are all considered, there are tremendous benefits to taking on credit which I would like to present along with guidelines to watch out for.

1. Credit cards often have bonuses and rewards that come along with opening and using one. The rewards could be in the form of flyer miles or a percentage of cash back. This is free money for the user. A credit card user should be careful though that they are not spending more than they would without a credit card. Those perks are incentives to spending money, and this could create a bigger spending problem. The rewards should simply be seen as an added gift to going about their normal spending.
2. Credit cards provide a user with financial safety and convenience. It decreases the risk of money being stolen or lost. With most cards, you can immediately deactivate it if you have lost your card. This prevents thieves from making personal purchases on it. The downside to a credit card is that your credit card information can be breached. This tends to be a time-consuming process when it happens. But, if you pay attention to your statements and keep track of what you are putting on your card, you can catch these breaches quickly which should prevent long term ramifications. Credit card companies also have fraud protection departments to watch out for this as well. It is also much more convenient carrying around one credit card in your wallet rather than $500 in cash.
3. A credit score is often highly considered when one is attempting to take on select debt, such as a mortgage or car loan. Banks generally want to make sure you will be able to pay them back the money they are lending to you. A credit score consists of payment history, amounts owed, length/depth of credit history, types of credit, and new credit. Payment history and amounts owed hold the most weight. One thing to be careful of is not being completely obsessed with your credit score. The score is something that will fluctuate over time and can be built back up after a poor financial decision. There is no reason to be concerned when it drops a couple of points. Though, one’s credit score is not the only thing factored into a bank’s decision for giving out a loan.

If you would like to learn more about credit, make an appointment with a NEXUS coach today: https://ronblueinstitute.com/nexus-financial-discipleship-center/.  

Resources:

Cruze, R. (2021, March 15). Your top credit card debt questions answered. Retrieved April 15, 2021, from https://www.ramseysolutions.com/debt/the-truth-about-credit-card-debt