Why Good Credit Matters
When I turned 18 everyone asked if I would do all of the things people who turn 18 are allowed to do: play the lottery, lease an apartment or house, buy a new car, etc. While some of these might have been helpful, more often than not, they amount to throwing money away. The one important thing that no one really asked if I was going to do when I turned 18 was establish good credit. Many generations have avoided talking about finances, credit, and other money situations. Growing up, I knew that we paid for things that we had, but I did not know if it was paid for with credit or cash. Was the interest on things 5% or 20%, and was either of them a good interest rate? I didn’t know if my parents were maxed out on their debt-to-income ratio, and perhaps my parents did not know the answer to that either. So, who was going to educate me about credit?
As parents, guardians, mentors or any other person looked upon as an advisor, we have no problem discussing homework, but we never discuss credit. When was the last time I solved a quadratic formula or used any other form of calculous or algebra? I really can’t answer that. I then compare that to when was the last time I used my credit. Did it save me money or cost me money? With all of the knowledge I attained in school, I had to learn everything about credit by asking questions or learning on my own.
Talking about credit should be started at a young age and become a common topic of conversation. If I told you that two people, one with good credit and one with bad credit, went in to buy a car for $35,000 and had a loan for the same term, and the one with good credit would save thousands more, would you believe me? This happens every day to all kinds of people. If you had bad credit, you most likely would end up paying more in interest. This example is just one vehicle. What does this amount saved do when you add in multiple auto loans, multiple credit cards, line of credit account, unsecured loans and a mortgage? The amount of money that can be saved over one person’s life is astonishing.
Credit is typically a subject that becomes more important to a person as a result of their money mistakes; we are always learning from our mistakes. However, something so valuable and life changing shouldn’t be something that we pick up through trial and error. Being declined for a much-needed loan should not be the time you decide you need to learn about credit, because at that time it may be a long climb uphill to get the credit you need. Instead, this should be a topic that we discuss openly with our children, whether young or old. If you feel like your knowledge is lacking in the credit area, seek out someone with knowledge, such as a banker. Anyone who knows credit would love to help you gain the knowledge you need to be informed. Ask about good credit scores, percentage use of revolving credit, late payments, debt-to-income ratios, and revolving credit compared to installment loans. Get the answers that will help you save money through credit. The more knowledge we can pass on, the more buying power, which will help educate the future credit borrowers of tomorrow.