Why you need Credit now and how to begin building it for the Future

I wanted to write a blog about Credit, why everyone needs it and how to take control of your financial future.

I recently had a client tell me he didn't have Credit Cards because he thought paying 20% on his own Money was a ripoff. At face value this Gentleman has produced a good argument, why pay a high percentage, even if it is for convenience.

What my client does not understand is how Credit works. Your Credit Score, actually your FICO Score, is a number between 350 and 850 that represents your Credit-Worthiness to any given company. Your Score goes up and down based on your Card Balances, Payment History, Length of open Tradelines and number of Accounts.

The Interest Rate you recieve when you Finance a Car, House or Credit Card is always based off of your Credit Score. The more Credit you have, and use responsibly, the higher your Score is. The higher your Score is the lower Risk you represent to a company and the better your Interest Rate or Price. Enter my Client.

The Gentlemen does not want to pay for Credit at a store such as JC Penny or Best Buy. However, let's say he were to get a store Charge at JC Penny with a beginning limit of $200. He buys 3 sweaters @ $20 each for a total of $60, which he pays off over a one year period at the burden of less than $10 monthly. With a 20% Finance Charge, he pays $72 for his sweaters over the next year.

In the above example my Client does end up "Losing" $12. However, over that year he has built Positive Payment History, Balance, Opened a lengthened Tradeline and added a Positive Account to his Credit Report. His Credit Score increases 40 Points in one year.

Here's what I am getting at. 40 Points on this Gentlemens Score would qualify him for a 1% Lower Interest Rate on his Home Loan. On a $100,000 loan, a small House by Madisons standards, the difference between 7% and 8% (That One Percent) is $68.40 a month. By increasing his Credit Score 40 Points, he will save $24,624.00 over the next 30 years on his House Payment! And that is a small House. On a $200,000 home he would save $137/Mo or $49,300 over 30 years!

If everyone were to practice responsible, educated use of Credit, a lot of people would save a lot of $$$$$. Get Credit where you can, Kwik Trip or American TV will give Credit to anyone, and use it very responsibly. Never charge more than 50% of you Cards Balance, this will hurt your Credit. If you ever have to miss a payment your Car Payment affects your Credit more than your Credit Cards do.

In conclusion, $12 now for $49,000 over 30 years seems like a no brainer to me. The best part, you can all save more than this! Start building your credit now. Work hard, read about responsible use of credit and when in doubt, ask me! Buy something you want now, pay for it very slow and that Luxury now will become a necessity for later...Thanks.....