The following is a contribution from John at FearlessMen.com. If you’re interested in contributing to Frugal Rules, please see our guidelines and contact us.
When I was 23 years old I applied for my first credit card through Discover and got declined. I couldn’t understand why and that’s when I started to learn about credit. The first bit of new information I received was that I had a Ghost Account. I was told that this was neither good or bad. I basically had no credit history. It was good because there was nothing negative on it. It was bad because I had no history to show I was worthy of receiving credit. I ended up having to go with a credit card from my bank which had a $300 limit. This entire situation raised questions in my mind such as:
What’s the big deal with credit?
Why and how does it play such an important role in our lives?
Why is managing and understanding how credit works not taught in school?
Back in the day a man’s (and woman’s) word meant something. A man’s word could be considered a form of credit. If you said you’d pay someone back and your word was good then they’d most likely believe you. A man’s word is a thing of the past though when it comes to financial dealings. So now, for financial loans we have credit. This is something you definitely don’t want to ruin. However, credit is easy to ruin if you do nothing to manage it and think it’ll take care of itself.
A friend of mine once said, “Manhood can be summed up with this one word: responsibility. Being a man means taking responsibility; responsibility for your life, your actions, your character, your attitude.” It’s important we take responsibility for our credit. One way is to learn from the mistakes of others.
How Others Have Ruined Their Credit
Relying on service providers’ billing departments to always be accurate
I’ve heard of hospital bills and car payments going to collection agencies. These are legitimate bills that you need to keep the receipts for because they might make a mistake and over-charge you.
Using credit cards like they’re free money
Know your credit cards before they ruin your life. Credit is in essence, a loan, and you need to know not just the credit limit but also interest rate.
Not monitoring your Social Security Number (SSN)
Someone can easily take your SSN and assume your identity. If you monitor it you’ll be able to catch it in time. Don’t share it unless you have to. When you’re legitimately asked for your SSN they’re required by law to keep it secure and not share it without your permission.
Not monitoring your credit
If you use a reliable credit monitor then you’ll get notified when someone opens a bank account or does something in your name that requires a credit check.
With a new job comes increased income and a tendency to splurge
Many forget that this means higher taxes. It’s important to budget that new income first before spending.
Not paying bills
Defaulting and being late on payments is one of the worst things you can do for your credit score.
Horrible. If at all possible, don’t do it. This one single action will destroy your credit for seven years.
Credit Myths To Zap From Your Brain
When I get married our credit scores will be combined.
Not true. Each individual keeps his or her own credit score. When you get married it’s not added together. You may go in for a loan together but both your credit scores will be checked. If only one name has to be on the loan than you can go with the better score. But something like a mortgage takes both of your names. It’ll be embarrassing and frustrating if it’s your credit score that bumps the percentage up a number.
Credit repair companies will fix my credit report of all negative records.
Not true. They can only help remove what doesn’t belong. If you were late on a payment then it belongs as a negative spot on your credit report. They can’t do anything about that.
Some think that carrying over a balance is better than paying in full each month.
Not true. You risk paying interest and eventually making late payments. Credit card activity is good, but pay off the balance each month.
Don’t touch it and it’ll stay intact
It might be out of sight but this is something you want to keep your eyes on.
Your credit is extremely important. Most don’t realize until they start applying for car loans, phone plans, buying a home and applying for a mortgage and some employers will check your credit score. A good or excellent credit score can be the difference in hundreds of dollars on a car payment plan or mortgage. I once walked in to a car dealership and the young man next to me was getting a loan at 19% interest. His credit score was so poor he had to accept the only loan he could get. I’ve even heard of people asking on first dates what the other’s credit score is and if that score is under 600, not pursuing a second date.
While much of this is inconsequential when you’re young, as you get older it can really hold you back and become extremely frustrating. Fixing your credit is much tougher than managing it properly so be proactive and get a jump start. Don’t do what these others have done and don’t believe the rumors. Check your facts because that’s what your credit score is calculated by.
John is a cofounder of Fearless Men. A blog for those interested in Manly topics. Grow Strong, Get Fit, Be Wise, Face Your Fears and Become A Better Man.
Editor’s note: John brings up a great point about taking responsibility for our credit and finances. Credit can be a great tool, if used wisely. If you skimp on watching it, you have the potential to pay the price for doing so.
Photo courtesy of: Psi-Hei Liao