Welcome back to our blog! Today I want to go over the true cost of bad credit. I’m the owner of BNB Credit Builders, and after talking with clients for over four years I’ve come to the conclusion that it doesn’t matter where you’re from, or what your race is, or what your income is… the bottom line is that the average person really struggles with understanding how credit actually works. Many people simply just don’t understand why they have a certain credit score.  So, this article will shed some light on the topic.

I’ve had new clients come to BNB feeling like they had great credit, only for me to analyze their credit report and find out that their credit is far from great. I’ve also had clients come to us believing that they had terrible credit, but that was not true. The common issue is that people think their credit score is the only indication that they have good credit or bad credit. 

The first thing to know is the diversity of tradelines and the number of tradelines on a credit report are key to what makes good credit.

A tradeline is just an account. For example, your car loan is a tradeline, your credit card is a tradeline, and your mortgage is a  tradeline.  Each tradeline gets credit for a good payment or a bad payment at the end of each month, depending on if the payment is made on time. So if you have one tradeline on your credit report and you make 12 on-time payments, you will have 12 good payments at the end of the year. Now if you miss your next payment then 1 out of 13 payments are negative which would be approximately 8% of your payments. Because in this scenario, you only have one account, that missed payment can bring your score down. Now imagine if you had 10 tradelines all paid on time for 12 months; that would give you 120 on-time payments at the end of the year. Now, if you miss one payment over the course of a year, but you have ten accounts reporting on your credit, your late payments would only be at 1%. The number of accounts you have can make a huge impact on your score!

Your credit score will determine how much you pay in interest on their credit cards, mortgage, car loans, boat loans, student loans, and any other kind of loan. Not only does the score affect how much you pay in interest on loans, but a bad score will also prevent you from accomplishing things like renting an apartment, being hired at a high-paying job, and also how much you pay for car insurance!

This chart will show you the difference in interest paid on a mortgage based on the different tiers of credit. Note that LTV stands for Loan to Value Ratio.

The shocking part is that it is so easy to have good credit if you just follow the right steps and learn the rules to credit.  

There is so much misinformation out there on the internet about what goes into a great credit score and how to build great credit. There are so many influencers out there that say cash is king – which is 100% FALSE! When is the last time someone you know bought a home, car, or paid for school in cash? It rarely happens, so building amazing credit is crucial to reaching those milestones.

One way to build credit and avoid paying all of the interest that comes with a bad credit score is to continue adding tradelines to your credit. Learn to create good habits, like paying off your credit cards every Friday. Open the right credit cards (not store credit cards ladies). We love to see our clients open up accounts that come with perks like cash back, travel points, and free hotels! Click here to access a list of credit cards we recommend. You should know that installment debt that helps your credit and credit card debt hurts your credit.

These are all things that we should’ve been taught in high school, but unfortunately were not. I created this company back in 2014 and we pride ourselves on teaching folks the rules to credit, and giving them the skills to learn how to start teaching their children about how credit really works. We’re trying to stop the cycle of people believing that credit cards are bad!

If you want to learn more about building great credit and also turning your credit into a money-making machine, reach out to us online at www.bnbcreditbuilders.com, or check out our Facebook page for more information!