The vast majority of people today have a large amount debt. We are told that we need to obtain credit cards, mortgage loans, vehicle loans, and numerous other items on credit to build a good credit score. Therefore, the vast majority of people today have a large amount of debt. The dangerous trend leads us to a lifetime of paying more than what a product is worth.
The three main suppliers of credit scores are TransUnion, Experian, and Equifax. Credit scores dictate much of our life. If we want a good credit score, we must follow their rules. Keep in mind that you are tied to them for life. They can dictate to dealerships, mortgage companies, credit cards, and just about any other company what we will pay for an item. Let’s take vehicle purchase as an example.
Currently, Ford is advertising a special for 0% APR and cash back. There is always small print and the three major credit score suppliers dictate that small print. The average credit score in 2018 is approximately 695. Based on this statistic, the average credit score is considered average or fair. Taking that into consideration, the average american would not be eligible to take advantage of Ford’s 0% APR and cash back offer.
Against the Grain
Let’s take a moment and consider a new approach to credit. What is this new approach? Let’s eliminate the obtaining of credit from our vocabulary. This is something that conventional wisdom says that we absolutely cannot do. Why not? Who makes that decision for us? Take back the power of your money and quit giving it away to the credit industry. Seriously! Do they need it more than you? No!
Take into consideration an interest rate of 15% on a credit card and assume you spend $1000. The minimum payment will usually be around 2% of your balance each month. At this rate, you will pay $20 a month for 6 1/2 years and an extra $580.00. Basically, you paid $1580.00 for an item that was worth $1000.00. Another way to look at it is is that you have just lowered your salary each month.
Patience is the key to success, not a credit score. Yes, this is going to get a lot of dislikes. However, here it is in a nutshell. Don’t spend what you don’t have. Before you purchase that $1000.00 item, ask yourself if you have the money to purchase it. If you don’t have the money to spend $1000.00, why on earth would you have the money to spend $1580? We both know the answer.
Good Credit Purchases vs Bad Credit Purchases
So what is a good credit purchase? The best answer is a Home Mortgage Loan. The price of a home normally dictates that we purchase on credit. In my opinion this is the only time that we should consider using credit.
Should I buy a vehicle on credit? This is a sticky question. If you can get the vehicle for 0% APR, then maybe. Why do I say maybe? Well, because the moment you drive your new pristine vehicle off of the lot, it loses value. Yes, loses value!!! Personally, I never believe you should buy a new vehicle. It should always be a used vehicle that has a few years on it and a low count of miles. This saves you a ton of money, gives you many options that are not affordable on a new vehicle, and keeps it’s value.
I don’t like having a credit card. Some will say to have it as a safety net or to build credit, but I’ll disagree with this notion. We need to build our safety net safely! I’ll cover more on this tomorrow.