Beginner’s Guide to Finance – Credit

by Scott Sery on July 18, 2012

One of the most useful financial tools a person can have and use is credit.  It is also one of the most dangerous tools and can completely ruin a person’s financial health if it is used inappropriately.  There are many financial professionals out there that think it should only be used in rare circumstances.  For those who have trouble controlling their spending, this is true.  But for those who can resist the urge to charge unnecessary things, credit can help them immensely.

Leverage

Credit provides leverage.  During their lifetime many people will be purchase a house.  Rather than wait their entire lifetime to save up the money needed to pay for the house outright, they will take out a mortgage.  While they will borrow enough to pay for the house at today’s price, the house should be increasing in value.  When the loan is paid off, the house should be worth significantly more than they paid for it.

Ease

Credit makes purchasing easier.  Rather than taking the time to write a check, find a stamp, and mail it each month bills can be paid on the card.  Instead of using a debit card and having multiple small deductions from the bank account every month, all necessary items can go on the card and the user can pay just one bill at the end of the month.  Anyone who has ever tried to save up to buy a car knows how hard it is to set the money aside.  But getting a car loan makes the buying process much easier, and with interest rates as low as they are today, getting that loan with affordable payments is easy to do.

Most people want to own a home at some point.  Just about everyone needs a vehicle in order to get to and from work.   A lot of people would not be able to have the job they do now if they never got a degree.  We all have bills and requirements for everyday living expenses.  Instead of trying to manage a bunch of cash to pay for all these things, credit simplifies the entire process.  By starting young, and using one of the best credit cards available to pay for just a few small purchases each month a person can develop a long credit history.  Paying off that card, in full, will not only improve your credit score, but it will also teach discipline to pay back debt and live within one’s means.  Starting small and building up to larger purchases will help ease a person’s financial life and allow them to get better rates on car and home loans.

Most people hate debt.  Those who use credit poorly hate it even more.  While I do not like paying for the mortgage each month, I know I would not be in my home without taking on that debt.  When used properly, a credit card can make the monthly bills much easier to pay.  By knowing your income, knowing your spending, and making sure you do not put more on the card than you can pay off each month, credit can be quite the blessing.

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website ScottSery.com

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