The Value of Good Credit

Unfortunately, not many know just how valuable having good credit is. This is due to lack of knowledge and the misconception that credit is bad. That misconception is a result of being exposed to those who have used credit the wrong way and viewed it as free cash, later ending up in massive amounts of debt. But, for those that use credit the right way, good credit can put you miles ahead, literally. When you use credit the right way, your credit card offers lots of benefits such as cash back or points which can later be redeemed for statement credits, purchases and flights. To understand the benefits of good credit, it is essential to understand all of the factors that go into having a good credit score, and what exactly good credit is…so let’s delve into everything credit:

Let’s start with a credit report, similar to a report card, it is a detailed record of your credit history used by lenders and creditors to determine your creditworthiness. A credit report includes details concerning current and past loans, any credit card balances, payment history, and information regarding possible bankruptcies, foreclosures, or tax liens. There are three major credit bureaus in the United States that create your credit report: Experian, Equifax, and TransUnion. While a credit report encompasses the details of your creditworthiness, a credit score is what is produced based on the information found in your credit report. The range of a credit score is from 300 to 850 and your credit score plays a big impact on whether you’ll be approved, how much you’ll be approved for and also what your interest rate will be. The higher your credit score is, the more likely you are to be approved for a higher loan and a lower interest rate . So what are the factors that influence your credit score?

• Payment History: Late payments? Missed payments? Payment history is an essential aspect of having a good credit score. Making consistent and timely payments will display how responsible you are, and positively impact your credit score.

• Revolving Utilization: This refers to the amount of credit you are using compared to the amount you have available. The recommended credit utilization is 30% or less, the lower your credit utilization is, the more it’ll boost your credit score.

• Length of Credit: Credit for a long period of time has a positive impact on your credit score. You’re essentially passing the test of time by having a credit account with a long and consistent history, so it is important to keep your oldest credit accounts open, as they are a vital part of your credit history.

• Types of Credit: Creditors want to be sure that you can handle variety. Different types of credit, such as mortgages, credit cards, and auto loans, will also positively impact your credit score.

• Inquiries: The fewer inquiries you have, the better. If you apply for too many new credit accounts in a short period of time, it can be detrimental to your credit score.

To maintain your good credit score, it is crucial to monitor your credit history to ensure the information on your credit report is not fraudulent, but instead accurate and up-to-date.

Now that you understand how credit works, with a good credit score you can reap numerous benefits. Having good credit pays because you are more likely to be approved for credit cards that offer cash back rewards and points that can be redeemed for rewards. When applying for credit cards, opt for one that best suits your lifestyle. For instance, if you love traveling, go for a travel rewards card! If you spend thousands on groceries yearly, opt for a card that offers substantial cash back on groceries!

Credit cards that offer cash back rewards, allows you to earn a percentage of cash back on purchases made with your credit card, you can use that cash on statement credits, flights and other travel expenses, etc. To maximize your card’s use, choose the card that offers the highest cash back percentage on categories you spend the most on.

On the other hand, some cards offer points as opposed to cash back…which means you’ll earn points on your purchases and they can be converted to cash and used for statement credits, flights and other travel expenses, etc. If you strictly want to use points for travel, consider a card that partners with an airline or hotel that you frequent.

If you’re just starting out with credit, a secured credit card might be a good choice to start with. With a secured card, you determine your limit by making a cash deposit. By using your card responsibly and making on-time payments, you can build your credit and eventually be eligible for an unsecured card, with a refund of your initial deposit.

Having a good credit score is vital, from getting approved for loans to securing lower interest rates on credit cards. It is important to also be mindful of your credit usage and make all payments on time and to avoid interest charges, be sure to pay your bill in full. Credit, when used responsibly, can offer a multitude of benefits. By using credit cards responsibly, you can also reap the rewards of cash back and points, allowing you to maximize your purchases and potentially save money in the long run. Remember to choose a card that aligns with your spending habits and offers the best rewards for you. Ultimately, understanding how credit works and making informed decisions can lead to better control of your finances.