We are always telling our clients that they need to establish credit and then use it wisely and make timely payments in order to achieve and maintain high credit scores.
It’s not wrong to use credit cards – in fact you MUST use credit cards if you want to have top tier credit. However, there are times when you need to give it careful consideration before you pull the trigger on a purchase. Some of these instances include:
If you are purchasing a home in the next 4-6 months. A large purchase made with credit will alter your debt ratios if it is not paid off in full within a month or two. Plus, if you are applying for department store credit in order to make the purchase (perhaps for furniture to go in that new house) your credit scores could go down temporarily. Neither is a good situation for a mortgage lender.
If you can not pay off the purchase within a few months. Even though “low interest rates” are all over the news these days, credit card and department store cards can often carry rates around 25%. Yep, that’s right, 25%. If you can’t pay off that purchase within a few months, you’re going to pay far more than the sales price you might be getting on that purchase.
If you have average credit scores already. It can be tempting to take that offer at Home Depot or Lowe’s and get 10-20% off today’s purchase by applying for a credit card. But if your credit history isn’t great and your scores are sub-700 already, applying for that new card will probably drive those scores even lower.
Watch out for “introductory rates”. It is fairly common for stores to offer “no interest” or extremely low interest rates on purchases for the first 6 months. For instance, you want to buy the latest big screen TV and the store offers you “1.9% interest for the first 6 months”. What they won’t tell you is that if you don’t have that TV paid in full within that 6 month period, you won’t get that 1.9%. Instead, you’ll get a rate over 20% in most cases and that TV could cost you a fortune.
Understand that we are not advocating that people avoid using credit. Instead, we just want to help educate the general public on how to use credit more responsibly, achieve and maintain higher credit scores, and save a lot of money on interest fees in the process!
Got questions? Need help getting your credit back into shape? Give us a call for a free no-obligation consultation.