Common practice dictates that borrowers should protect their credit so that they would be able to borrow money when they need it. Protecting your credit means to pay your bills on time to reflect an R1 credit rating on your Credit Bureau file. But, when you misuse your credit, it would not only cause you financial problem but it could also lead you to a legal bind.
Lending money is a competitive business. Credit grantors especially credit card companies are aggressive in marketing their services. If you are a holder of a major credit card and your payment record is excellent, it is normal for you to receive a pre-approved credit cards from other competing credit card companies. Moreover, if you still maintain your good payment record, other credit card companies may grant you big credit limits up to $50,000.00 or more.
If you succumb the temptation of accepting those credit cards, they could tempt you to use them to purchase items you do not need. Should this happen, you would be building up your credit card debts which are beyond your capacity to pay when payments are due. This would be the beginning of destroying your credit rating that runs counter to your intention of protecting your credit.
When you are addicted to the use of your credit cards, you may use them in abusive manner by purchasing expensive items like: cars, boats and motorcycles, oblivious of the consequences.
A good illustration was a man who had multiple credit cards with high credit limits. He purchased two brand new luxury cars for him and for his wife and took vacation to exotic places with his wife using his credit cards. As a result, he defaulted his payments and his last resort was to file for bankruptcy few months later.
Bankruptcy did not solve his debt problem because his creditors opposed his bankruptcy on the ground that he misused the use of his credit cards, thus, he was accused of fraud – a criminal offense.
To avoid the temptation of using your credit cards on unnecessary expenses, keep only one credit card. One credit card is enough for emergency purpose, rent a car, and to check in a hotel. With the introduction of Bank Debit Card, you do not need to carry many credit cards.
If you need to purchase a big item apply for a bank loan for its interest is much lower that credit card’s interest. If you do not qualify for a bank loan, postpone buying the item until you have enough savings to purchase it. Using your credit card in buying big items is a first step leading to a financial ruin.
Proper use of your credit is to purchase items that you need and you can pay the bills when it is due. However, when you use your credit cards on items you do not need, knowing that you could not afford to pay the bills when it is due is a misused of your credit. It would not only ruin your credit rating, you may be also charged of fraud as in the above case scenario. Be prudent in using your credit.
Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc.(an accredited member of the Better Business Bureau), A former financial planner, a former mortgage broker, and the author of the book, You Can Negotiate All Your Debts. He also writes another column, “Biblical Perspectives” in this paper. For a free initial, professional and confidential financial consultation including issues on power of sale, call 905-306-7572 or visit www.debtcliniccanada.ca