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Building Credit: Using Credit Cards As Tools of Financial Freedom

building credit tipsCredit cards, like any tool, are only as good or bad as the people who use them. Credit cards have gotten a bad rap, but that’s only because people are uninformed or misinformed when it comes to using them properly. While the ability to use a credit card to purchase something you don’t have the money for may seem like a great thing, the reality is that purchasing without discipline can land you under a mountain of debt with no discernable way out.

That doesn’t mean that credit cards are bad, however. Your credit score affects many facets of your everyday life, and can even affect your employment opportunities. In fact, having three active credit cards is one of the best ways to improve your credit score, because your credit history plays an important part in helping credit bureaus decide if you’re safe to lend to.

So how do you go about being responsible with your credit?

It’s not always easy, especially since the qualifications for having a high credit score are often not publicized. Well, there are a few easy rules you can follow that will make sure you’re in the best possible position to get your credit score high and keep it there.

The first rule involves your credit utilization rate. Simply put, this is the amount of available credit that you’re actually using. You want to keep your utilization rate below 30% at all times.

The second rule has to do with the popular myth that keeping a balance on your credit card will help your credit rating. This is false! Credit bureaus don’t know if you’re keeping a balance or not, so pay off as much of your balance as possible every month and avoid interest payments.

These easy-to-follow rules are just the first step toward responsible credit use. The question we really need to be asking is this:

If having good credit is so important, but the potential to misuse credit cards is so dangerous, then what exactly should you be using your cards for?

Simply put, you should use credit cards to cultivate wealth for yourself. When we say wealth, what we’re referring to is a state of abundance, a forward momentum from where you’re at now. If you’re charging gas on your credit card and carrying a balance from month to month, all you’re really doing is paying extra for something you could have bought at regular price – you’re creating extra debt for yourself where it doesn’t need to exist.

However, if you use that same credit card to purchase books about business and finance, or to take a class to improve your productivity at work, you may still be incurring some extra debt, but you’re also improving your quality of life and the value you have to your employer (or if you’re self-employed, you’re directly contributing to the quality of service you can provide your customers.)

So you see, the trick is to use credit cards in such a way that they are a benefit and not a burden. When used properly, credit cards become just another tool you can use to make your life better. The next time you go to pull out that card, think about whether your purchase will improve your life or just create additional debt.


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