As you grew older, you only found out later in life that you don’t have a credit record. From a very young age, you’ve only made cash purchases. A credit record was only taught to you when you got to high school, college, or when you entered the workforce during your gap year. It is always a pleasure when you’re able to pay for something once-off instead of doing recurring payments. This amazing feeling ignites a sense of pride and relief in you. It’s a trap! Let me tell you my story of how I got caught in this by explaining the differences between credit and once-off.
I was a victim of making cash purchases instead of creating debt. I would spend a few hundred dollars on one item regardless of there being a monthly option available. I simply refused to do so. I’ve seen, many times, how debt devoured a worker’s salary or their weekly wage. Upon paying their debt, they end up having little cash flow for the rest of the month. So what happens next? They’re forced to make a loan at the bank or consider a loan shark if the bank rejects them. This puts them in a greater predicament by the time they need to repay the money to their lenders. Cash purchases, on the other hand, can cause a big dent in your pocket. Instead of paying $500 for an item, you can choose to pay it over a given period - approximately $41 per month over twelve months. Take into consideration that the interest still needs to be added to the monthly installment. In the long run, you’ll end up paying more for the item than the initial cash selling price.
You may ask yourself why interest needs to be paid. What is the reason for it? This answer can be found all over the web, however, my answer is much more simple. Interest is the price of money. This generally fluctuates several times during the year. If I borrowed $100 from John, I’m expected to return the $100 when in a specified time frame. On the other hand, banks, loan sharks, and sometimes people like John, will charge you for the $100. Banks will give you an agreed-upon period to repay the installments, plus interest. Loan sharks and some Johns’ will typically give you a period of one month to repay the money plus an extra $15. Therefore, you were charged $15 for the $100 that you borrowed.
A few years into the future when you apply for a vehicle, mortgage, or clothing account, you're made aware that you have a low credit score or no credit record - like me. Now, you are forced to go to the bank for a loan, big or small, to build your credit record. Sadly, you’ll have to wait a few months until your score pushes up to the required score as stipulated by the credit bureau. Unless you’re one of the lucky ones or hard workers to buy a house or a vehicle, cash. Furthermore, the fact that you have no credit record still bothers you. You finally decide that you need to make debt per the credit bureau.
I was forced to make a small loan at the bank because my credit score was below ten. A good credit score that is accepted by many stores to buy on credit is between 650 - 750. Unfortunately, at the time and date that this article was written, my credit score was below 500. I applied many times to purchase goods on credit because I did not have the money to pay for something in cash especially if it will cost me an arm and a leg. For example, I yearn for a 27 inch Apple iMac and a vehicle. Regrettably, I’ve been rejected by many service providers and car dealerships thanks to my putrid score. I’m confident that as soon as my small loan is paid in full, I’ll have the required credit score to purchase the Apple iMac.
For those who are still having a hard time purchasing on credit, make sure you settle any outstanding debt to stabilize your score (if applicable), or, if you don’t have any debt, make a personal loan at an accredited financial institution. A grave mistake that most people (debt-free consumers) do is that they take out a loan and repay it in full after a month. This is a terrible idea! If the bank informed you that the amount, plus interest, must be paid over a period of six months - adhere to it! Settling the loan early will incur penalty charges and it will damage your credit health. Financial institutions want to see one of two things:
Did you ever miss an installment? And,
Were your monthly installments paid on time?
When you apply for a personal loan, banks tend to offer you the maximum amount available. Don’t fall for this trap! The monthly installment of the maximum amount will undoubtedly carve a huge hole in your pocket. At the time when I called my bank for a personal loan to boost my credit score, the maximum loan amount that was available to me was $500 payable over a six or twelfth-month period. The minimum amount was $140. I decided on the latter over six installments. The bank agent was kind enough to attempt to brainwash me so that I would take the maximum amount over twelve installments. I laughed and kindly told her: “No sir, give me the lowest”. Yes! I called her “sir”. Despite this, making regular monthly installments and complying with the loan agreement will boost your credit score. I can vouch for this! My score is not where I want it to be yet but it’ll get there. The only thing I require is vast amounts of patience - and so do you!
I urge all young adults to start building their credit scores now already so that they do not have to suffer in the future when they can purchase a vehicle or property.
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