Credit is one of the most poorly understood financial structures in the life of the average American. Everybody knows that most people have credit scores. They also know that wise spending and paying off your credit bill make a score go up. That’s about where most people stop.
Instead of learning how it really works, people rely on their guts for day-to-day decision making. They hope that everything will turn out all right in the end. Unfortunately, debt and poor behaviors come together fast. People with little understanding and strategy get weighed down financially, often in ways that they don’t even notice.
Companies like Vantage Acceptance of Woodland Hills, California (to provide one example of many) help people comprehend their credit. They help set the stage for better financial health in the future. Here are some of the ways that the average person can improve their standing.
Improving Your Credit Standing
As an example, Woodland Hills, California is known for wealth. Not everybody is actually wealthy but even fewer people with money also have sterling credit. Credit doesn’t work the same way wealth does. In fact, more isn’t always better.
It’s possible for someone to be very wealthy indeed, while having financial history that is very much in the toilet. Part of the problem is the extent to which an individual relies on debt, compared to their own liquid resources. Creditors don’t like it when it looks like someone is living off of credit.
Most creditors can’t look into your bank accounts to see how much cash you have. They can look at how much of your credit limit is used every month. To them, it signals financial distress if you have $30,000 in available credit to be used and you carry a balance of $26,500.
Being in debt is expensive in most cases. To carry such a balance, you could be paying anywhere from 10% to 30%+ in interest every year. Your creditors know that you know this and that you’d likely pay down your balance if you possibly could. By carrying a balance, you look like you don’t have any other options.
This is one of many factors that lowers your credit score. When you miss a bill payment, request a mortgage loan or open up two accounts in as many months, your creditors can only assume that you are financially overextended. By lowering your score (a function tracked by the three reporting agencies), you will find it less easy to borrow. This will help stop potentially reckless behaviors in their tracks and keep future lenders from losing money when you go bankrupt and can’t pay it back.
There are so many other factors which go into good and bad credit. Suffice to say that they appeal to common sense. But you’re not born knowing this stuff. By using the services of Vantage Acceptance or any other similar provider, you can learn the steps to bringing your credit back to a healthy place. This will save you lots of money in the long run and help initiate good financial habits.
Questions for Discussion: Have you hurt or helped your financial life by your behaviors? If you had bad credit, what have you done to repair it? Is debt worth it or do you think it’s fine to live a completely debt free life?
Nice article. This is a topic I’ve been thinking about and hope to write about soon. There are a lot of Millennials who have no credit history whatsoever. When used responsibly, credit is an increasingly important aspect of financial planning, and people need to be aware of it.