Handling personal finances well is not everyone’s forte. Using credit can be a risky business for those that lack financial discipline. Ironically purchasing goods on credit has numerous benefits for those people who have no need to use it, but do so to take advantage of the benefits that credit provides.
Buying on credit is a necessary step to ensure that a credit history is established. Without an all important high credit score, life can be more inconvenient and more costly. Establishing a good credit score opens the door to lower insurance premiums, as well as the best mortgage and loan interest rates. A solid credit reputation is becoming increasingly more important to employers, landlords, insurance companies and creditors.
The simplest way to obtain a high credit score is to use a credit card for monthly expenditure, and thus take advantage of the interest free grace period this allows. Astute card users never carry a balance or incur interest charges. They make timely payments by automated debit for the full balance which is maintained at 30 per cent of less of available credit. Myfico provides excellent advice on the best way to establish and maintain a good credit score.
The interest rate on a credit card becomes irrelevant when the consumer pays the balance in full each month. Instead the consumer can take advantage of the best cash back and statement credit offers available. The higher ones credit rating the easier it is to obtain credit cards which offer the best benefits, such as extended purchase protection and free insurance against purchase theft and accidental damage. Some cards offer different types of free travel insurance, whilst the majority of cards give purchase protection against faulty goods.
Credit cards carry risks for those less able to keep a tight rein over their finances. Failing to pay a monthly balance in full will result in interest charges accruing, unless an interest free introductory offer is utilized. These offers are ideal for large ticket item purchases though, allowing an expensive item to be paid for interest free whilst the funds necessary to pay earn interest elsewhere.
Where many people fall down with credit use is purchasing what they cannot afford and thus living beyond their means. Credit cards can be an expensive method of borrowing which should be avoided. Failure to pay on time or utilizing too much available credit will result in a poor credit score which in turn indicates fiscal irresponsibility.
Credit cards are the only means of using borrowed money which can be totally free to the consumer. Other forms of credit such as bank loans and pay day loans carry fees. If a consumer can only obtain fee bearing credit cards they should only be used as a short term solution to improve a credit score or for those new to credit to establish a credit history.
Living on credit has proven to be a costly mistake for many, thus those in doubt about their ability to control it should educate themselves about proper credit usage or espouse it. Those who have no need to purchase on credit will always be the ones to reap the advantages it offers.