THE BLOG

Advanced Credit: How Everything Is a Trade-Off

04/03/2012 06:20 pm ET

People tell me that the reason they like using the 90 Day Credit Challenge and working with me to improve their credit is because I keep things really simple and I focus on the fundamentals. But there is a lot more I could talk about, including stuff that is a little more advanced. In this article, I'm going to cover a couple of advanced topics... But don't worry! This isn't rocket science. I'll keep even these advanced topics really simple and applicable!

The advanced topic I want to talk about is how everything in life is a trade-off.

You trade several hours of the day to work at a job so you can earn a paycheck. You trade some of that money for food, a home, clothes, entertainment, etc. If you have children, you trade your carefree freedom as an adult to raise your kids. Every dollar you have and every moment in your day is always up for trade to one thing or another and you spend your money and your time on the things that are important for you.

That's an easy concept. So now you're wondering: "How is Jeanne EVER going to connect this to credit?"

As you strive toward achieving and then maintaining healthy credit, you will be more successful when you understand this idea of the trade-off. Just like in life, when you are maintaining healthy credit, everything is a trade-off:

• The whole credit repair journey might seem like a lot of work but the trade-off is that if you put in the time, you will have access to healthier credit (which results in more buying power and lower interest rates, and you'll sleep better at night, too.)

• A credit inquiry can help you get a new car or a new house but the trade-off is that it could drop your score. Don't just keep having your credit pulled for no reason.

• A budget can take some time and effort to figure out and there might be some discomfort as you struggle to stick to it but the trade-off is that you protect yourself from missed payments and late fees, and keep your credit score in better condition.

• Regularly checking your credit score through MyFICO takes a few minutes and costs a little bit of money but the trade-off is that you maintain your credit score, keep your buying power up and your interest rates down, and protect yourself against identity theft.

Here's why I've introduced this topic even though it might seem a little advanced at first: Every time you pull out your wallet to buy something, every time you get a bill in the mail, every time you ask for a loan, you are making a credit decision and there will always be a trade-off that could result in a higher or lower credit score. Not every choice you make needs to necessarily result in a higher credit score (for example, maybe you want to get a loan and need to make a credit report inquiry) but it's important to understand that every financial decision you make DOES have a credit score impact.

As in life, your credit score is derived from a series of trade-offs. That doesn't change when you achieve healthy credit; it just means you get a little wiser in determining the best outcome of each trade-off.

Any credit question, please email me JeanneKelly@TheCreditOwl.com