Updated: Mar 15
If you grew up like me, you heard black people don't have good credit. No one ever gave an explanation. Everyone knew that's just the way it was. There were no expectations of having good credit, and no real examples of someone showing how to do it. I never could have imagined, back then, that credit could be a powerful tool. We were just taught black people have bad credit, white people have good credit and those are the rules.
For clarity, my parents didn't teach me these things, although they had their fair share of debt raising five children. I'm really referring to all the people in my neighborhood on the west side of Chicago and everyone else I met, other than my immediate family.
There were no examples of how to get good credit and what to do with credit. The concept that credit could be used for any other reason other than as a special allowance to buy things was inconceivable.
Thankfully, my destiny was to master the game of finance. Despite my humble beginnings, I learned the truth about credit and gained the knowledge to make it work for me.
What is Credit?
Credit is borrowing money from a lender that you agree to pay back. The loan allows you to purchase goods or services when you need them. There are many aspects to credit and today we're only highlighting the very basics. Your credit simply is the financial buying power you possess to purchase things with borrowed money.
Why is it important?
The reason credit is important is because it is a valuable tool to create leverage for yourself when you need it. There are good kinds of debt and bad types of debt. Refer to our previous article as a refresher.
What is leverage? Leverage is using borrowed money with the expectation of making more in profits than you pay in interest. Use credit this way and allow it to work for you. Do not use credit as a means to finance something you couldn't otherwise afford, with no definite plan to pay back the loan. This is the road to financial ruin.
7 "The rich rule over the poor, and the borrower is slave to the lender."
Proverbs 22:7 New International Version (NIV)
Using Credit as A Tool
Credit is not limited to credit cards, and charge cards. Those can get you in a great deal of trouble when used irresponsibly. One smart way to use credit is through investing in real estate.
Your credit score is based on an algorithm and when you understand the components that make it up, you can use it in your favor. As long as your score is sufficient, and your debt to income ratio is at the appropriate level, you can obtain a bank loan to purchase a property.
You’re leveraging the bank's money as you pay off the loan, however your investment property can appreciate in value. If you owe $1200 a month on the mortgage and one of your tenants is paying you $1800 a month, you're earning $600 a month in passive income.
Passive income is money that comes in that you don't have to go to work for. This is the way to win with credit. Think of creative ways to use other people's money to make yourself more money. That's how the banks and credit card companies build their fortunes.
Use credit as a means to grow your net worth by allowing it to work for you.
There are many aspects to credit and one of the experts I highly respect in the field is Mr. Will Roundtree. As Wealth Legion guides you throughout your financial journey, we will recommend experts we have vetted who have earned our trust. If you're serious about learning about credit on a deeper level, I consider Roundtree to be one of the best in the field. Read his book, "Credit is King." Share your success stories with us. We want to hear from you.
You know what credit is and why it's important. This book is a fantastic resource to further your education. Wealth Legion will cover this topic during future articles, as well as, dedicate an entire chapter in our upcoming book, "Financial Empowerment."
Download the app, Credit Karma, to monitor your credit score for free. Don't wait until you're trying to purchase a vehicle or home, to find a surprise on your report you weren't expecting. If you're serious about building your score and want to partner with an expert, visit https://www.wemanagementinc.com and Mr. Roundtree can deliver the results to help you attain your goals.