Financial Advice from Mother to Daughter: Take it easy, but take it¹

March 29, 2012 - PRLog -- II.Credit is Good
It is a truth universally acknowledged that a woman in possession of a good credit score must be financially in want of little else. Credit is the power to buy something today and pay for it later and also the  means by which an individual financial identity is established.  In comparison to men, credit has historically been under extended to and underutilized by women.  Understanding the power of credit is  key to effectively building financial independence.

Six Reasons Credit is Good
1.Security for yourself and your family- According to the 2010 report Stress in America by the American Psychological Association, money, work and the economy are the most frequently cited sources of stress for Americans².  Establishing a solid credit history can do more than just give you purchasing power.  It can provide much needed stress relief from the unexpected bumps in life: a death, divorce , loss of a job or other misfortune.  
2.Financial Identity-   It is critical for women to establish credit in their own name. Managing a credit card account successfully is a direct route to achieving a healthy credit score. To build a credit score open your own credit card, use it, carry low or no balance and pay back the debt on time. If you are unable to obtain a credit card of your own, becoming an authorized user on a husband’s or parent’s existing card may be a first step.
3.Build a history- The most commonly used credit measure is called a FICO score. The FICO score is a three digit number whose largest components are payment history, the amounts owed and the length of credit history.  Having a good FICO score opens up access to additional credit should it be needed and will allow you to obtain more favorable rates on your credit cards.  Go to www.myfico.com for more information.
4.Flexibility and discipline in life choices- Although these 2 terms may seem at odds, using credit properly( the discipline)  allows purchases to be made when and where the buyer wants (the flexibility). A good rule of thumb is to use credit to pay for personal consumption items such as clothing, gas & electronics only to the extent you can pay it back immediately and not carry forward anything other than a small balance.
5.Independence to buy assets- Use credit in the best possible way: to finance assets.  Once you have an established credit score you will be able to purchase assets, real estate for example. You will obtain ownership of the asset as you pay the credit off.
6.Leverage- In the investment world, credit may be utilized to achieve leverage. Leverage enables you to use a small amount of money to control a much larger investment. A familiar example of this is a mortgage.


A word of caution: it is not difficult to get into trouble with credit.  Extending your balance up to the limit with high interest rates can sink even those with sizable incomes. In addition, carrying a large balance and making even one late payment can lower your FICO score, thereby defeating the purpose of establishing credit.    

Managing credit properly is a price worth paying for the empowerment a  healthy credit score brings. As with most everything in life, the key to credit is moderation.

¹Woody Guthrie

²http://www.apa.org/news/press/releases/stress/key-finding...

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