How much does bad credit cost you? We discuss the importance of your credit report and what type of transactions affect yours.

Allow me to talk about consumer debt and maintaining good credit.

Here are some of the factors that show up on your credit report: your mortgage, credit cards, student loans, debt, medical bills and many more.

We tend to talk about credit reports like it’s a grown up thing, but actually, once you get a social security number and you do anything like going to a mall and opening up a $300 credit card at Pacific Sun Wear for example, that instantly goes on your credit report even as an 18 year old.

And notoriously, 18 to 25 year olds destroy their credit before they even really know what their credit score is or before they ever need their credit for something like an apartment or a car lease.

It’s important for you to know how much bad credit can cost you.

For example:

If you have bad credit and you put your name on a utility bill for your first apartment, the utility company might charge a whopping deposit. Now, they might charge you for that upfront or in installments as you pay every month.

There’s a push right now to get people who pay their rent on time to be able to use that Renter’s Credit as part of their credit score. So, whereas someone who is paying a mortgage is getting a boost to their credit score for paying their mortgage on time, there will be a boost to your credit score for paying your rent on time. 

The other thing you can do to build your credit if you have bad credit is to apply for some pre-paid cards. These are cards that you put money in so you can then use them as a debit or credit card. 

A prepaid credit card can build your credit and give you the opportunity to get a non-pre-paid card after a year or two. 

One thing to keep in mind is that banks and the creditors like to see available balances high and the balance due very low… that’s how they determine your credit scores if you’re going to get credit from them… So if all your credit cards are maxed out you’re probably in trouble because they’re going to see that you don’t have any credit available to you and you might be opening another credit card because you’re desperate.

One other thing that might start to affect your credit report is your presence on social media. If a creditor thinks that your behavior is risky, they might be more inclined to turn you down for credit.

All those things are part of your credit picture now due to the internet and easy access to information. Your credit score is made up of a lot more things than it used to be when I was young…

The problem with credit card debt is not that we use credit cards, it’s that we don’t understand credit cards. Credit cards are unsecured credit…

This means that if the bank gives you a credit card there’s nothing they can come after if you don’t pay up. When you get a mortgage on a home they say “okay you didn’t pay your mortgage so we’re taking your home back” or if you have an auto loan and you don’t make your payment they come and take your auto back.

So, what does the bank do to feel better about the fact that they’ve given you unsecured credit? First, they give you an interest rate which can range from a 0% introductory rate all the way up to usually 14% or 15%.

Whatever your credit score is, that is going to determine your interest rate.

Secondly, don’t be late with your credit card payments, if you absolutely must, have the auto debit come out always on the due date, so that you’re always on time. And then during the course of the month pay it down even more.

You pay the minimum payment by auto debit and then you go ahead mid-month and make a bigger payment so you will pay down your credit card faster.

Thirdly, if you have a credit card that’s paid in full please don’t close it… keep that credit card open and put it away. Your credit score looks at how much credit is available to you and how much you have used. 

It’s also very important to keep in mind that promo interest rates last a very short time. You might know these as introductory rates. What this basically means is this:  we’re going to get you into our web with this incredible rate. However the little fine print says you might get screwed over and end up at 28.99% if you make one mistake, so it’s very important you don’t make mistakes.

It’s also important you educate yourself on compounding interests.

So make sure you read the fine print and understand the deals that you are signing with your creditor.

Okay, today we are going to discuss borrowing money from a friend or a family member. 

I’m going to say it’s a bad idea, if you say you’re going to borrow money that means you’re going to pay it back. It creates a very awkward situation with friends and family when you borrow money. 

But if you do have to borrow money in case of an emergency, come to them with the solution not the problem. Come to them and say “I need to borrow $4000, and this is what I’m going to use it for. If you allow me to borrow the money, this is how I will pay it back” and then stick to that no matter what. Remember, lives and relationships have been ruined by family members and friends who borrow money.

Normally, if you borrow money from an institution of any kind, you would be paying interest.

So, it’s only fair if you decide and I’m saying IF you decide to borrow money from a family member, a friend or a coworker that you pay them an interest rate that is slightly higher than the lowest interest rates.

In other words if the current interest rate is 3.5% pay them 4% because they’re actually giving you money from their pocket counting on you to return it.

You should never owe someone $15,000 for 10 years.

I will tell you there are some scary things about borrowing money from friends and family. Let me give you an instance, you borrow $4,000 from somebody so you can buy an updated computer because you don’t have room on your credit card and you don’t have cash.

So, you go to a friend that you know has cash put aside and you say, “I need to buy this computer for my work , I  promise I will pay it back. I will give you 4% interest and I will give you $400 a month for the next 10 months.” Your friend is a little uncomfortable, your friend is a little squirmy but says “you know I believe in you, we’re good friends, here is the money.”

Then 2 months later, you have not paid them any money back and you’re on vacation or you buy a car or you’re out spending money at clubs or doing something like that. The only way it is safe to borrow money from a family member, a friend or a coworker is that you have the payback set out in paper, you sign a note and you agree to this and under no circumstances do you break that agreement.

That means if something comes up for you to go to on a ski trip and you owe someone $800 you say to your friends “I’m sorry I can’t go on that ski trip. I owe my friend who got me out of a jam money .”

That’s the way to be honorable, that’s what we do when we have integrity and dignity: we honor our word.