Establishing Credit Helps Build Wealth
A credit card may seem like another way to help you purchase things you need but it can be much more. Your credit probably has the single biggest impact on your finances than any other thing. A good credit score you’re going to save thousands of dollars over the course of your lifetime. Credit cards are the fastest way to improve credit.
You’ll Learn
- History of credit cards
- Benefits of credit cards
- How to make the most of your credit cards
How a Credit Card Can Improve your Credit Score
80% of credit can be influenced by just credit cards alone, that’s why it’s so important to learn about them.
On time payments (35% of credit score)
Paying your bill on time monthly is responsible for 35% of your overall credit score.
Utilization rate (30% of credit score)
30% of your credit score is made up how much of your available credit you utilize. In general, you don’t want to use more than 30% of your total available credit. If you have $1000 in total available credit. 30% of that is $300 which is the maximum amount you should spending without negatively impacting your credit. The banks feel if you spend too much money the less likely you are to pay them back.
Length of credit history (15% of credit score)
The older your credit card accounts are the better it is for you. 15% of your credit score comes from The length of your credit history.
What happens if I only pay the minimum amount on my credit card statement?
- Your average credit card has an APR of 14%
- The minimum amount is 4% monthly
If you bought a new MacBook for $15,000
and paid the minimum of $60 a month it would take you 7 years and 9 months to pay it off and you’d pay $562 in interest in addition to the original $1500. It’s a bad idea to not pay your bill off in full every month because you’ll just end up paying extra. There a ton of things that you probably heard about credit cards which are all false.
Rewards Cards
This will help you establish a new line of credit, raise your credit limit, and best of all earn rewards that you can use for paying your monthly bills.
Why you should use a credit card instead of Debit (assuming you can spend responsibly)
Consumer Protection
If there’s an unauthorized charge on your account the credit card company will fight for you to get it removed. You cannot be held liable for more than $50 of fraudulent charges made to your credit card. This protects you in the event your card is lost, stolen, or counterfeited. The only stipulation is you need to contact the merchant first.
Automatic Warranty Doubling
If you buy an iPhone with its one year warranty the credit card will cover the device for an additional year.
Trip Cancellation Insurance
Covers up to $1000 a year in case you need to rebook your flight your card takes care of the fees for you.
Car Rental Insurance
If you already have vehicle insurance you don’t need to buy insurance when you rent a car because you’re already covered. However, if you use a credit card your credit card has collision insurance up to 50 thousand dollars.
What happens if you miss a credit card payment?
- expect at the very least 14% in interest
- a $35 late payment fee.
- Another fee for paying the bill late
- Credit Score dropping 100 points
- your monthly may be increased to 30% ARR
- If you have another credit card your interest rate could be kicked up to 30% also.
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Here is a list of resources mentioned in this episode:
How to opt out of unwanted credit card offers
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