Credit: Friend or Foe?

24.02.24 05:51 PM Comment(s)

Today, it’s nearly impossible to get through life without a form of credit. And for many people, that’s not a bad thing. However, it can be a destructive thing if used improperly, so it’s always important to be mindful of how credit decisions can affect you. Every time you apply for a credit card or take out a loan, make sure you are doing everything you can to stay on the bank’s good side, or it can come back to bite you. Many future decisions in life are based on how you handle these responsibilities.

Why credit is your friend

Credit opens up doors to many opportunities that would otherwise be unavailable to you. The ability to get a college degree and own your own home is incredibly difficult without any money. Even as early as 18, you can start building credit. When managed well, this access can open up many doors, like owning a home or getting a degree. In this case, having the ability to take out a loan is great and can make many things that felt like they were out of reach, affordable. Many credit cards also give cash back rewards on everyday purchases. If you keep your balance low on these cards and don’t accumulate interest, it’s basically free money. Just remember not to carry a balance month to month and rack up interest.

How it can be your foe

Credit is fun to have, but dangerous when misused. If you end up taking out too much debt and carrying high balances on cards, you can get stuck in a cycle of debt. If this becomes the case, it’s not too long before credit becomes your enemy. Once your score is hurt, it also becomes hard to get it back up. Many negative actions will stay on a report for years, keeping your score low. With a low score, you lose access to good interest rates. Having high-interest rates will increase your risk of defaulting and keep you buried. It could even prevent you from owning a home because no company will want to take a risk on you. You could end up waiting even longer to achieve your goals if you mismanage your credit.

How to build your credit score

Many different factors go into forming your credit score, like how much of your available spending limit you use and if your payments are made on time. By knowing what factors will affect your score, you can learn to maximize it. The best way to keep your credit score as high as possible is to always make payments on time, keep your card’s balance low, and diversify the types of credit you use.

Having a good credit score while having student loans can be difficult. That’s why Defynance offers an income share agreement that has the ability to eliminate your student loan debt. An income share agreement allows you to pay only what you can afford, leaving you the freedom to live your life. Payments in these agreements are flexible and always affordable. They are interest-free and also protect you by preventing you from making payments if your income is below $25,000 a year.