Life’s Money Rules – Rule 6: Manage Your Credit

I’ll admit it. Rule six in my book, 7 Money Rules for Life: How to Take Control of Your Financial Future is not my favorite of the seven rules. Honestly, I would much rather change “Manage Your Credit” to “Death to Credit, Live on Cash” and be done with it. But unless we can figure out how to turn back the clock a half century or so, that would be unwise—even foolish.

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That leaves us with two choices. One, we can ignore the matter of consumer credit and just hope for the best (not a very good option). Or, two, we can take full responsibility for maintaining an excellent credit rating for the purpose of saving money and improving our financial intelligence and our effectiveness as money managers. We must opt for the latter because your credit rating plays a very important role in your financial health.

Rule six in its entirety reads, “Manage your credit rating to achieve a high level of creditworthiness.” Read this rule again, paying close attention to the words “credit rating” and “creditworthiness.” This rule does not mean going into debt, creating debt or taking on huge sums of available credit. Credit on its face is not bad. In fact, having a good credit rating, which is measured by your credit scores, simply means that based on your past behavior, companies and individuals that you deal with can expect the same from you in the future.

As much financial trouble as I managed to get into because I abused credit cards and ran up insane amounts of toxic debt, I don’t blame credit. I take responsibility for the foolish decisions I made and the horrific ways that I abused consumer credit. That my credit led to toxic debt was of my own doing.

There is a trending belief in some circles that to have good credit you have to be in debt, or that a credit report is just a “debt report” because it measures your debt. That is not true. You do not have to be in debt to be found highly creditworthy.

These days a poor credit rating can be costly, and that’s the reason you need to assume the role as your own personal credit manager. To do this, you need to monitor on a regular basis your credit report, credit score and credit card account.

You may assume that given my financial history and the way that credit-card debt nearly ruined my life, that I wouldn’t carry a credit card even if my life depended on it, and that I recommend you get out the scissors to perform a little plastic surgery. If that’s what you’re thinking, I’m about to disappoint.

The truth is that a credit card—the right credit card—used smartly by someone with a modicum of financial intelligence can be a useful financial tool that can also contribute to a high FICO score, thus achieving that high level of credit worthiness you need.

If you missed reading the first five rules: Spend Less Than You Earn, Save for the Future, Give Some Away, Anticipate Irregular Expenses or Tell Your Money Where to Go—get caught up. We’re talking about each of the seven rules over these next few months.

Question: How would you rate yourself as your family’s money manager? 

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7 replies
  1. Debbie Sue
    Debbie Sue says:

    Another benefit of having great credit is at mortgage time. My husband has downsized me from our marriage but I was determined to keep our home for my son’s sake. I decided to buy my ex out and so as an unemployed (on chemo) divorced woman I approached the bank with an iron clad financial agreement and a sterling credit rating. I always pay off all credit at the end of the month. I never carry a balance. That is what tipped the scales to enable me to get a $500K mortgage. I was within $2K of getting that mortgage. It is worth it.

  2. Marie
    Marie says:

    I’m so glad to read this article! I understand the thinking of the danger of credit cards, but used properly like Mary says, they can be helpful. Like Vicki, our credit card company pays us to use their card:) We have a cash back card that gives a 4% rebate on gas, 2% on food and groceries, 3% on entertainment (which we don’t use much), and 1% on everything else. Because we learned long ago to live on a strict budget we use our credit card for all purchases, writing down everything as it is spent. And because my husband and I are both paid bi-monthly I pay the credit card bill bi-monthly as well, to match our cash flow, so we’re never behind on our budget. The cash back money goes into our entertainment fund, and we splurge on things that don’t fit into the budget (like an occasional weekend away, or dinner and a movie). When we refinanced our home last year both of our credit scores were in the 800’s. Mary, I’ve been reading your column and books for years and we have healthy contingency and emergency funds established. Thank you!

  3. Guest
    Guest says:

    Anne … Wow, that would get me out of balance as well. Are you supporting them completely? Yikes … adding 7 more to the family budget would throw just about anyone into a financial tizzy.

  4. Anne
    Anne says:

    I considered myself a pretty good money manager until my son, his wife and their 5 kids moved in. I have been out of balance since they moved in in January. I am trying to get a handle on it, but it has overwhelmed me.

  5. vicki
    vicki says:

    I have finally mastered my credit! (after 13 years of WWMD- What Would Mary Do?) We only use a cash back card for travel, gas,big ticket items, & internet purchases. We pay them off monthly. I actually deduct purchases from my checking account immediately and consider it spent. Last year the credit card company PAID ME over $1000 to use their credit card!


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