Credit: A Building Block for Building Wealth

 

I recently participated in an Experian #creditchat titled Building Wealth, Not Just Credit: How Credit Fits into Long-Term Financial Success. Its purpose was to explore how credit can be used as a building block for wealth accumulation over time.

Below are the seven questions that were asked and my responses:

What does “building wealth” mean to you, and how does credit play a role in that journey?

Building wealth means gradually increasing your net worth over time by increasing assets, reducing debts, or both. Wealth-building is slow in your 20s/30s but is impressive as investments grow. A good analogy is the progression of prizes on the Who Wants to Be a Millionaire? game show.

 

When you think about credit beyond approval/denial, what role does it play in long-term wealth creation?

Credit provides leverage to use OPM (other people’s money) to buy appreciating assets. Case Example #1: A mortgage. Most people need to borrow money to buy a home that increases in value over time. Case Example #2: Student loans to build human capital to earn a good income.

 

What’s are common myths about credit that actually holds people back financially?

Myth: “Checking my credit score hurts it.” Checking your own credit is a soft inquiry and doesn’t affect your score at all. Not checking your credit history can let errors linger for years. Myth: “I should avoid credit cards entirely.” Actually, avoiding them can hurt your credit history. Responsible use (small charges, paid in full) builds a positive track record.

 

What role does financial education play in helping consumers use credit as a wealth-building tool?

A substantial body of research shows that financial knowledge and skills influence financial decisions that help shape wealth outcomes. Examples of financial education impact include higher credit scores, fewer defaults, and higher savings

 

How can building credit early impact financial success later in life?

Good credit helps people qualify for loans and perhaps a job and lower insurance premiums. Also, it is difficult to travel for business without a credit card, which could hinder your career. Finally, lower interest associated with good credit can save tens or even hundreds of thousands of dollars over time

 

How can having access to credit at the right time influence wealth-building opportunities?

Many wealth-building opportunities are time-sensitive. Credit allows people to act when opportunities appear. Also, credit can accelerate compound interest. The earlier someone acquires an appreciating asset, the longer it has to grow.

 

What is one piece of advice about handling credit for your younger self?

Build a positive credit history by making payments on time and in full and keeping balances low.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.