There are many, many misconceptions out there about credit and how it works. It can be overwhelming to navigate through all the noise, especially if most of your information is coming from the very people who want to sell you MORE credit!
Credit in and of itself is not bad. It can be a very useful tool in establishing credibility with lenders to give you and your business access to financing (other people’s money) that can be leveraged into other growth opportunities. I definitely don’t recommend heavy use of credit cards unless you have gotten out of debt and have been able to train yourself to use self-control.
But provided you have those controls in place, you can better your credit score while getting the benefits, all at the same time! We funnel almost all our fixed expenses through a credit card which gives us cash back and travel points that are convertible into statement credits (i.e. refunds against purchases), without paying one dime of interest. The key is to religiously make a payment every time you make a purchase. Don’t spend what you don’t have. EVER.
Just in using this approach personally, I’ve watched my credit score increase about 50 points just this year alone. I’m now in the top tier with my credit score, which then gives me access to better interest rates, which then results in spending less money.
One of the biggest keys is to not carry a balance on your cards. This will ding you. Plus, you don’t want your APR kicking in. Also, it’s really important not to keep a high balance to credit limit ratio, because lenders will see this as an inability to manage your available credit. Just because you have a $10,000 credit limit (or higher!) doesn’t mean you should use it.
If your credit improves enough, you will begin to qualify for top-tiered cards like the American Express Centurion Card (some people call it the “Black Card”). Of course the annual fee is outrageous, but it could make sense for you if the savings and access outweighs the cost.
Also, you may qualify to refinance your mortgage at a super low rate. I just heard last week of somebody who refinanced their mortgage at 2.75%!! I couldn’t believe it. This means what? You pay less to the lender.
For the win,