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How Important is Building Your Credit?

One Of The Most Powerful Tools To Build Wealth.

I remember when I was a teenager, I would hear the adults around me always talking about the things they wanted to do, the things they wanted to buy or the trips they wanted to take. Somehow, many of those that spoke about these things were the same ones that didn't even have a job at the moment; some by choice and others because of the lack of employment opportunities available in Puerto Rico at the time. Then I learned of a magic word that, like a genie granted many people their wishes, even if they really couldn't afford it; credit. So let's talk about it.

Credit is an essential part of our financial life. It allows you to make purchases and obtain loans, and purchase these grand and amazing things, even when you don't have the money in hand, but it can also serve as a lifeline in a time of emergency. Just like those annoying tests that you had to take in school, getting a low score can impede you from reaching a higher level (at least when I was in school that's how it worked), a low credit score can make it difficult for you as an adult to reach another level in life, in your business and/or investments. It can be the difference between starting a new business and not.

A low credit score can make it difficult to get approved for credit or loans, and if by chance the credit gods are smiling upon you and you do get approved, that money comes to you at a much higher cost than someone with a healthy credit score. So if you are one of those that have a low credit score, it's important to take steps to improve it as soon as possible; and I say it this way because I am assuming you're looking for a path to a better life or even build your own little empire.

I grew up listening to a phrase in Spanish that said “La última cuenta la paga el diablo” which means that “the last bill is paid by the devil”. This was usually said when someone knew they were getting into debt knowing it was not the smartest move. Constantly hearing that puts you in a mindset of “hey if I was approved this much credit, I should use it all and get everything I desire because who it's not a big deal if I can't pay and my credit is ruined” without measuring the long-term effects of my decisions. Trust me guys, I know what it's like to fall into the traps of debt, and have life take you to the brink of bankruptcy, where you end up scrambling to make ends meet and struggle to get your life back on track. These types of attitudes towards debt and my credit were one of the first things I had to unlearn to walk the path I walk now. Furthermore I wanted to mention a few strategies that people use (myself included) to fix their credit and start building a better future.

  • Check Your Credit Report: The first step in fixing your credit is to check your credit report. You can get a free credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Review your report for errors or inaccuracies, and dispute any errors you find. There are options such as where you can join for free, and check your credit often to get a general idea of your score, without receiving an inquiry that can affect your overall credit score.

  • Pay Your Bills on Time: Late payments can have a significant impact on your credit score. Pay your bills on time, and if you are unable to make a payment, contact your creditor to discuss your options.

  • Reduce Your Debt: High levels of debt can also have a negative impact on your credit score. Develop a plan to pay off your debts, starting with high-interest debt. Consider consolidating your debt with a low-interest loan or balance transfer credit card. It is often recommended to keep the usage of your overall credit under 30% in order to maintain a healthy credit score.

  • Increase Your Credit Limit: Increasing your credit limit can improve your credit utilization ratio, which is an important factor in determining your credit score. Contact your credit card issuer to request a credit limit increase. Be on the lookout for emails and letters from your credit card company; they may offer credit increases without you having to request it. You should also be aware that when you request an increase on your credit, they may have to do a hard inquiry on your credit which may cause it to shift a bit.

  • Use Credit Wisely: Use credit wisely, and avoid maxing out your credit cards. Keep your balances low, and pay off your credit card balances in full each month. If paying it in full is not an option at the moment, understand that making the minimum payment is never really a good idea since most of your payment may be going to pay interest on the debt.

  • Don't Close Unused Credit Cards: Closing unused credit cards can have a negative impact on your credit score. Instead, keep your unused credit cards open, but avoid using them. I have a drawer where I put all the cards I do not want to use, thus avoiding impulse purchases, and I have that credit available to me just in case.

  • Seek Professional Help: If you are struggling to improve your credit, seek professional help. Credit counseling agencies can provide advice and guidance on how to improve your credit score.

Even though it seems like the Government wants to punish those with great credit scores by asking them to pay more, so those who did not protect their credit can be subsidized (look it up) I personally still advise everyone to build credit, and work on fixing it if it's not so great. If you have never opened a credit line, do it now, even if its a secured credit card with $200. Once you establish credit, make it a priority to protect it. Fixing your credit requires time and effort, but it is worth it. By checking your credit report, paying your bills on time, reducing your debt, increasing your credit limit, using credit wisely, keeping unused credit cards open, and seeking professional help if needed, you can improve your credit score and achieve financial stability. Remember, improving your credit takes time, so be patient and stay committed to your goals.

If you got any value from this article, all I ask is that you please share it with others.


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