Good credit can help you finance audacious goals such as buying your dream home, investing in your education, or starting a business — all of which contribute to financial stability and wealth creation. However, misuse or over-reliance on credit and loans can lead to a bad credit history, creating financial stress.

Understanding the value of good credit and avoiding the pitfalls of bad credit can empower you to build a solid foundation for long-term financial wellness.

What is good credit?

When you use a loan or a credit card to finance a goal or support your budget, it can provide you with the financial backing you need to achieve your goals. Using credit responsibly by paying your account on time and not borrowing more than you can afford to, indicates to lenders that you are able to use credit responsibly, increasing your chances of being approved for credit applications.

When is credit bad?

Credit no longer serves your best interest interests when it’s used for impulse buys, or when the repayment obligations severely decrease your quality of life.  This could result in you not being able to pay off a loan or credit card balance. Consequently, you will see a drop in your credit score, making it difficult for you to be approved for a loan or a credit card in the future. 

Tips to manage your credit better

It’s important to manage your credit accounts and loans effectively so that they don’t turn into debt. Here are a few tips:

Budget for your loan – Before taking out a loan, ask yourself: “What am I using this loan for?” Make sure you have a specific answer to this question, such as “To pay for my education”, “To buy a new home”, or to “Pay off my car”. Once you understand exactly what you’re using the loan for, you can budget for your monthly instalments.

Calculate monthly repayments – The cost of your monthly loan repayments will make up a big part of your budget. Make sure to factor these into your budget before applying for a personal loan or debt consolidation loan. You can use our loan calculator to  determine what your monthly repayments will cost based on the size of the loan you take out.

Check your credit score – Check your credit score before you apply for your loan. Remember, the higher your credit score, the better the chances that your loan or credit card application will be approved. You can download your Credit Report for free here.

Remember, prudent credit management can help improve your life, create wealth, improve your credit score, and ultimately create a life that you want.