Credit is one of the most important elements of personal finance that we must carefully create, monitor and maintain. It represents your reputation when applying for financial assistance such as a home or car loan from a lender. Credit is also important when you are applying for credit cards. Your credit level informs lenders of your likelihood to pay back the money that they loan to you. It also determines whether they will approve your application and how much interest they will charge. Therefore, credit is very important in our lives today. Read on to learn much more about it and a strategy for building credit the right way.

What is a credit score? 

This is a summary of your credit risk represented in the form of a number. It is created by a special computer program after processing all the records from your financial history. A credit score helps lenders to identify the level of risk involved in lending you some money. It also helps to determine how much you can be lent, the terms involved and the interest rates attached. If you have a score of 700 going upwards, you have good credit.

Can you negotiate for lower interest rates? 

Many of us depend on loans to make progress in life. We need them for purposes such as buying a car or renting a house. These loans come with some interest rates attached. If you have a good credit score, then these rates are not so high.   The good news is that you can negotiate and lower them. Using your good credit as leverage, you can convince your lender to reduce the interest rate on a loan. This results in a more comfortable payment process for you.

What are the effects of closing a credit card? 

Should you fall out of good terms with your creditor, it is quite tempting to close their credit card. Before you make this decision, it is important to know that closing the card can drastically harm your credit score. In most cases, it is better to avoid closing it and simply put the card away. It can come in handy later if its terms of use improve or you find yourself in an emergency.   However, if you are trying to control your spending or the card is unused yet charges an annual fee, you can go ahead and close it. A word of caution is that you should first of all pay off all the balances on your other credit cards. Doing so will result in a credit utilization rate of zero. Under this condition, closing the card will not negatively affect your overall credit score.

How to build good a credit?

Building good credit takes time. If you have the right foundation, the journey can have eventual rewards. A great way to start building credit the right way is by using a secured credit card. This type allows you to place a specific amount of money on the card and use it as security for any purchases that you make. With your secured account, you can only buy products and services that cost less than the total amount of security deposit. This teaches you how to perform responsible spending and build good credit over time.


The world of today requires that you have good credit. It is very difficult to live with bad or no credit. The guidelines above can familiarize you with this element of personal finance. You can also borrow a leaf on how to build credit the right way and take steps to financial freedom.