Credit cards seemed like such a good idea at 25…

To purchase something with the assurance that you will pay in the future is what’s called “Credit”. Generally in this situation, the form of credit will be credit cards. Actually, credit depends on what you buy and where you shop from. This is the reason why marketing executives and businessmen try to attract people who may not fit into their income requirements. They know that, like most Americans, they likely have credit of some kind. Credit gives the average consumer the ability to live beyond their means.

Is credit all the same?

The answer is “NO”. The different kind of purchases effect drastically on your credit score and hence your financial status.

Today, it is very common to pay for anything from big purchases to small items and groceries. With the introduction of the credit card, even those people with meager funds purchase items on credit, and they pay off their bill each month.

Side Note: This is an excellent way to build and maintain credit. Determining a fixed spend amount on a particular purchase each month, then putting it on your credit cards.

How is credit viewed differently based on what you’re purchasing?

The type of purchase on credit reflects whether you are holding a sound position in your business or not. For example, if you use your credit cards for second-hand clothing or retired tires, bail bond services, massages or casino gambling, your credit card issuer makes a note of these purchases as it will give a measure of your creditworthiness. In fact, it measures your financial distress, indicating your efficiency to repay the credit amount!

Here’s a list of few items which might generate a good or bad credit score depending on the type of interest payment.

  • Interest rate you will pay when purchasing a car
  • Your ability to lease an apartment
  • Whether or not you get that new job, if you have to pay a security deposit when setting up utilities

How is your credit score calculated?

Following factors effect on the calculation of your credit score. Each of their weightage contributes differently to your overall credit score. For a more detailed review, see this article.

  • Different types of credit
  • Payment history
  • Credit utilization
  • Number of inquiries
  • Credit age
  • Revolving credit

It is useful for individuals or entities that experience sharp fluctuations in cash flow or face unexpected expenses in which the customer pays a commitment fee to a financial institution when he needs to borrow money. He is then allowed to use these funds when needed.

How is it that I can get approved for an auto loan but not a credit cards?

A good credit report in your arsenal helps you to borrow more money at affordable interest rates. Why? Because based on your credit history, the banks are assured that you are good at handling credit.

On the other hand, Bad credit ratings happen when money borrowed is not paid back on time or when it is simply not paid back at all. This is the reason why a person may be approved for an auto loan but not a credit card. You can purchase an Auto which has fewer interest rates on Auto Credit but to get a credit card, you need to furnish different assurances for repayment of credit card debts.

Why are my FICO Scores different for the 3 credit bureaus?

In the U.S., there are three national credit bureaus (Equifax, Experian and TransUnion) that compete to capture, update and store credit histories on most U.S. consumers. Nevertheless, there is only little difference in the information they collect from the consumers for calculation of the credit scores. But, collection of some unique information by one bureau might lead to calculation of a different score from the other two!

Equifax offers numerical credit scores that range from 280 to 850. The bureau uses similar criteria and input information as FICO to calculate these scores, while Experian does not deploy the exact formula and hence its credit score differs from the other two. This is the reason why these credit bureaus have different credit scores.


Maintaining low debt levels (especially credit card debts) and paying them off on time are important measures to ensure a good credit score. Having a proper proportion of credit, such as revolving credit and installment credit, can also help your credit scores. Staying on top of your payments regardless of credit type can make you eligible for any type of credit.

Obviously when life throws a curveball, it’s not as simple as just paying your bill on time every month. This is why it’s so important to build a small savings. This savings floats you through tough times so you don’t miss a beat in your debt free plan.\

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