To this day, there are those who have amassed a huge following by giving this advice in an entertaining and charismatic way. Their advice is always to save your money and buy whatever you need with cash.
Credit was originally created for mercantile businesses (old school Walmarts). They relied on credit to stock the shelves with all the products people needed. This was a huge advantage because no business had the money to buy all they needed with cash—especially as populations grew. As products were sold, merchants made their money back with interest and were able to pay back what they borrowed with interest and still make a profit. Credit made it all work. To this day, if you follow that same model and use credit the way it was originally intended, you can still make yourself rich. Education around credit wasn’t taught to everyone. It was limited to those who owned stores and that knowledge was passed down within their families. The general public never got formal education on the use of credit but nonetheless access to credit was made to them over time and without the consistent ability to pay it back people got themselves into a lot of trouble.
Our society now revolves around credit. Credit is our true currency. If you want to make any major purchase, you’ll need to have an established credit history that shows a solid track record of responsible use and record of on-time payments. The length of your credit and payment history make up 65% of your FICO score. This number is used to determine whether or not you’ll be extended credit and determines the interest rate you’ll need to pay. The reality is paying cash is fine for smaller purchases but eventually you’ll want a house, car or some other big ticket item and it’s highly improbable that you’ll be buying it with cash.
If your credit score is below 680 you should spend some time fixing your credit report to raise your score well above 700 points(the higher the better). While you can get loans and financing with a credit score below 700, it’s not ideal because you will pay much higher interest rates than someone with good credit. Yup, you’re punished for not having a good score as you’re seen as a risk to the financial institution. Once your score reaches the high 700s (like 780) your options increase. You have access to more credit card funding. This is a huge advantage as some credit cards come with a wide variety of perks and bonuses that make them very attractive.
Credit cards in and of themselves are neither good nor bad. Responsible use is the key. You’re borrowing money for a purchase and promising to pay it back at a later date. If you apply the original intended use of credit cards to how you use them, then it makes sense to have them. Knowledge of proper use is key to making permanent change for our community. We encourage you to keep your credit profile clean and as perfect as you can. You’ll need to rely on that profile for a personal guarantee towards establishing business credit like those old mercantiles used to do. With good credit, you have access to funding whenever you need it and high levels of funding can change your situation permanently. More to come. Let’s go.
