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.
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?