Brent’s Credit and Debt blog

When you have a credit card, there are times you may slip up and charge a bit too much.  You think ‘Well, it is just a couple of bucks.  I’ll make a payment and everything will be fine’.  But is it fine?  Really?

No, no, no!  Going over your limit is a serious ding on your credit scores!  By exceeding your limit, you may trigger an alert at your credit card company in which they start to evaluate your account for potential problems.  They might raise your credit rate, which costs you more money.  They could reduce your credit limit, which means you will be WAY over your limit.  They might charge you fees (in fact, most do), which can really add up fast.  Worst of all, they may report your account to the credit bureaus!

One little indiscretion like this shouldn’t make a difference, right?  Well, it does.  The way creditors view things, one little problem with one account may mean a bigger overall problem.  In fact, one late payment means you are much more likely to have more late payments in the next 90 days!  In the same vein, one problem with a credit limit typically means you will have more problems.

You can fix this.  If you are getting anywhere NEAR your limit, stop using your card.  Check your balance online on a regular basis and make sure you have room to buy the things you need.  And if you have a debit card, use it first!  Living on a cash basis will help you reduce your dependency on credit and start to live within your means.

When you are looking to rebuild your credit, you have to ask yourself a few questions:

• Have I solved the problems that gave me bad credit to begin with?

• Am I willing to make sure I don’t go down the wrong path again?

• Have I taken care of the debts I already incurred?

• What is my reason for wanting great credit scores?

I talk to a lot of people that are in the credit repair game for the wrong reason.  They are looking for MORE credit, a new car, a new house, or the ability to carry that shiny gold card.  However, they have yet to fix the problem that got them in trouble in the first place.

You need to take stock of your situation.  If you are using credit to extend your ability to spend, you will end up right back in the same bad place you were in before.

Credit was designed as a convenience for people who didn’t want to carry cash.  Later, it became an emergency measure in case something happened that you couldn’t cover with cash.  However, these days credit has become a luxury item.  We overspend, and comfort ourselves that we only have to make a small payment to cover what we buy.

Well, the truth is that those small payments add up.  Over time, small purchases here and there can force you into very large monthly payments that can actually destroy your financial position!

There are a group of people, referred to as the ‘FICO High Achievers’.  These are people with credit scores above an 800 (out of a possible 850).  It is a rarified goal, and one that very few ever achieve.  These people have access to loans, to better interest rates, to lower insurance scores, and generally don’t have the same kinds of credit problems that the rest of us have.  Why?  The use credit as a tool, instead of as a lifestyle enhancement.

I spoke to my banker.  He told me that the people that he serves that have the wealthiest appearance, such as big houses, luxury cars, and luxurious ‘stuff’ in their homes, are typically the farthest in debt.  They are using credit to support a lifestyle they can’t afford, and it catches them in the end.

At the same time he told me that people who learn how to manage their money when they are young are the most likely to be financially successful.  They live well, instead of extravagantly.  The spend money wisely, and use credit only when they are making a large purchase that cash won’t cover.  They don’t buy on impulse, and are less likely to have a 4 dollar coffee in their hands than they are a cup of coffee from the coffee maker on their desk.  These are the people that manage their money, and are more likely to be credit ‘High Achievers’.

You have to make a choice.  You can repair your credit, and go back to the lifestyle that caused the problems in the first place, or you can fix the problems and live better in the long run.

Whatever you choose, I wish you luck in living with credit!