How this Seemingly Small Loan will Help You Get the Biggest and Most Important One
Whenever I hear the words credit card my mind literally goes straight to the movie Shopaholic. For those of you who haven’t watched it — watch it.
There’s a whole load of finance lessons squished in there between the clothes and the drama.
It’s essentially a movie that’s based on a girl who has an obsession with shopping. Incase the title didn’t give that away!
She grew up in a really poor home, always wore hand-me-downs and when she was actually shopping for brand new stuff, it was for a pair of ultra-sturdy shoes made to last for centuries.
She saw all these glam girls swiping cards at the cashier. Safe to say, she got hooked on them. She wanted that lifestyle. Little did she realise it came at a cost.
This girl ended up taking out multiple credit cards. Yeah, you read that correctly. But in those days, companies literally threw them at you.
If you missed your credit repayment, ah no matter, they’d just gift you another one! Psst: read here why credit cards are cool but also completely crazy and top tips to keep you on track.
This girl practically lived off credit until one day it came back to bite her.
Anyway, I’ve practically spoiled the entire movie but it’s a great one and a real eye-opener!
So yeah, credit cards do get a really nasty rep.
They’re associated with a spending-more-than-you-can-afford lifestyle and it reminds us of people who are just rubbish with managing money. Read here the shocking truth why 36% of America’s high earners live paycheck to paycheck!
I can’t stand credit
If you can’t tell, spending what I don’t have is a pet peeve of mine. Aka credit cards.
I can’t stand the feeling of spending what’s not really mine then having to pay it back weeks after I ‘bought’ it.
I don’t like having bills on my head lying around all month. I like to pay for things now knowing it’s done and dusted.
And since I practically live by the mantra of “if I can’t afford to buy it twice, I won’t buy it once”, these credit cards literally go against all I believe in.
But these cards are more than a shopping tool.
And that’s what most don’t realise. Read here why your credit score is so important and how to boost it in 6 simple steps!
Credit cards can be the key to your dream home, if you’ll allow them to.
The proof is in the pudding
When you finally get round to buying a home, you’ll most likely need to take out a loan (mortgage).
Now, would a bank lend to you (a first-time buyer) when you’ve not shown them that you’re the kinda person who can meet their loan payments?
The answer is a big fat No.
Banks like to do all they can to ensure that their borrowers (us lot) are as safe as can be.
After all, riskier borrowers carry great costs for banks which is why anyone that has a poor credit history will find it hard to get a mortgage and if and when they do land one, there’ll be higher rates.
And no one wants that.
Your home will most likely be your largest — and most important — purchase you’ll ever make
It may also the biggest investment you’ll ever make make but first and foremost, it’s your home.
And you want this process to be a smooth one. No one wants to have that stress of waiting for your mortgage provider to get back to you while you’re desperately trying to hop onto that property ladder.
And having a sparkling credit score will help. A lot.
The deal with credit scores
Credit scores look at how good you are managing your credit aka loans.
Ideally, you want your score to be in the green band which is excellent.
If you have never had a look at your credit score, I recommend you register with Experian (a credit reporting company).
It will show you the band you’re in along with all your outstanding loans (credit cards, mortgages and other loans).
These credit scores are so important because they give banks a window into you as an owner of credit and how well you’re able to manage it.
The better you manage it, the more likely your mortgage will be approved. And the sooner you start building up your credit score, the easier it’ll be!
So where do credit cards come in?
Credit cards are a type of (mini) loan.
Each month you’re given some credit from your provider and you spend it on all sorts of things. From groceries to travel to clothes.
Then, at the end of each month you’ve gotta repay this credit back. All of this will go towards your credit score.
They’re a really great way to start building your credit history because when you apply for a mortgage you’ll need at least three years’ worth of credit history.
As long as you have credit, are using it, and most importantly repaying it, the amount of credit that you’re given doesn’t really matter.
Don’t spend more than you have
Failing to miss a repayment will damage your credit score and you’ll have to pay interest on what you owe which will keep on piling up unless you pay it off.
Don’t underestimate the power of these credit cards. They can literally make or break your mortgage.
Since they are a form of loan, you must use them responsibly. Only buy what you can afford.
You want your slate to be crisp. Free of any nasty blemishes that mortgage providers can hold against you.
So never spend tomorrow’s money today. Even with a credit card. Because nothing is ever guaranteed. So spend carefully.
Guard your credit and your credit will guard you.
Disclaimer: This is not investment or financial advice. It is my opinion only. This is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
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