From a consumer standpoint, the credit industry is vital to almost every aspect of our financial lives. Lines of credit make spending easier and sometimes help us through temporary monetary hardships. Credit reporting enables us to establish a history that demonstrates our reliability to lenders, who in turn grant us loans for houses, cars, and educations. Responsible spending and debt management establish us as consumers who can be trusted with more credit and additional loans when we need them.
It’s a win-win situation when we play by the rules and behave with financial responsibly. It can be a terrible downward spiral when we make mistakes or don’t behave responsibly.
A Privilege, Not a Right
Having credit is a privilege, not a right, and it’s up to us to establish a relationship with money enabling us to retain that privilege. Credit card companies make lots of money from our mistakes, which is how they are structured to work. When we behave responsibly with money, credit card companies don’t make as much, so it’s not in their interest to provide us with an education about spending.
Nevertheless, it’s up to us to keep ourselves informed, to protect our own credit, and to know our rights. While credit card companies have been forced to provide some educational materials to the consumer, the ultimate responsibility lies with us.
Maintaining Your Credit History Through Responsible Spending
Without credit, the dangers of spending beyond your means are obvious. You have to borrow money from people you know, usually friends and family, and the intimacy of your debts makes you continually aware of the responsibility and guilt that comes with being over extended. With credit cards, this responsibility is hidden, and the credit industry has also helped promote a feeling of entitlement in association with having credit.
Step Into My Parlor, Said the Spider to the Fly
Because credit industry advertising has aggressively promoted using credit as a normal way to spend, many people don’t think twice about going into debt. In many cases, they even expect to do it. It’s become the norm in our culture, but all too often people fail to consider the consequences. A little debt can help build your credit scores, but as soon you miss a payment, your credit scores are knocked down further than they were ever boosted.
Moreover, as soon as you’re overextended, hits to your credit can come in many forms and affect every aspect of your life. Thanks to so many information collecting and reporting agencies, any kind of missed payment will find its way back to your report, and these are sure to multiply once your debt becomes unmanageable.
While a little debt has benefits, it’s always a risky place to be, and credit card companies want you to stay there because that’s how they make profits. To spend responsibly means to stay out of debt most of the time, only using debt whenever necessary. Just making your payments will build a positive credit history. If you want even better credit and are financially stable, you can afford a little more debt. But to protect your credit, ultimately the safest way is to have little or no consumer debt. Protecting your credit history is your responsibility and it can only be achieved through safe and careful spending conducted within your means.
An excellent article about credit responsibility put out by the Public Broadcasting Service can be found here:
http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/responsibility.html
Maintaining Your Credit History By Keeping Tabs On Your Reports
The other aspect of credit responsibility that falls on the consumer is keeping tabs on your own credit history. The law is on your side when it comes to mistakes and inaccuracies, but it’s up to you to discover and dispute them. By keeping tabs on your credit history you help to protect your identity. You also remain aware of how your financial and consumer history plays into the broader system in which we live.
Your credit history is extremely important to your financial life, and although it may seem remote to you, it is, after all, yours. Remember to review your free reports each year, and use this website to find out how to investigate other reporting agencies and look into potential errors.
Government compiled information from the FTC concerning credit cards and consumer loans can be found here:
http://www.ftc.gov/bcp/menus/consumer/credit/loans.shtm