Worldwide Success

Credit can be a double-edged sword for both lenders and consumers.  For lenders, when used correctly, credit can open doors to acquiring news customers that otherwise would not be reachable.  It can also be a great source of reliable income for many financial institutions.  When used poorly it can lead to disastrous scenarios like the one we are living today with the sub-prime mortgage mess.

As a borrower, individuals can also benefit tremendously by using credit wisely.  It allows everyday consumers to buy homes, cars, and attend college.  When used irresponsibly, individuals can find themselves in disastrous situations, from being unable to dig themselves out of debt, all to the way to more serious consequences such as foreclosures and bankruptcies.

Knowing how to use credit to your advantage is a key skill that financially successful individuals have mastered.  A fundamental concept that people need to understand is the distinction between good debt and bad debt.  An example of good debt is borrowing money to obtain a college education so that you can increase your level of income.  Another example is purchasing a home that is within your means so that you don’t have to pay rent and make your landlord rich.  Good debt has some very specific characteristics, such as:

• Fixed Rates
• Low Interest
• Investment Purposes

Bad debt on the other hand is used for consumerism.  It finances things that you want but do not necessarily need.  Bad debt finances things that you cannot truly afford and that have no long-term value.  Examples include using credit to purchase clothes, toys, expensive cars, etc.  The characteristics of bad debt include:

• Variable Rates
• High Interest
• Consumerism

Bad debt is widespread today because in the last few years lenders have made it easy for people who do not really deserve credit to obtain loans that they are at a high risk of defaulting on.  Many credit card companies issue high interest credit cards to consumers with little or no credit history.  We have all seen the consequences of deregulation in the mortgage industry and what happens when people are offered loans that they cannot truly afford.

Today, the extensive amount of bad debt is one of the most serious financial burdens facing Americans and many people around the world.  Many of these people are hurting financially from carrying a very high load of credit card debt.  Many times these individuals are paying outrageous interest rates on debt that they find quite difficult to manage.   In the article How to Eliminate Credit Card Debt we discuss in detail what you should do if you find yourself in this situation.

As an individual, one of the most important measures of your financial success is your credit score.  We covered this topic in great length in the article Build Financial Success with a Strong Credit Score.  People that are financially successful and use credit wisely tend to have very high credit scores.  This financial advantage builds on itself by allowing these individuals to borrow money at a much more favorable interest rate than people with low credit scores.

Knowing how to use credit to your advantage and maintaining a high credit score can be the one factor that separates financial success from financial ruin.  It is extremely important that you master the concept of good and bad debt, that you always live within your means, and that you monitor your credit score on a regular basis, always striving to reach as high a score as possible.   If you credit score is below 660 you need to start making some changes to your credit management skills in order to become financially successful.  Your goal should be to be within the 750 to 850 range which is considered excellent credit.

As simple as this may sound, if you simply follow the guidelines of good credit management explained in this article you will be in a better financial position than the large majority of people out there.

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