There are many critics that are strongly against using credit.  Some criticize credit or debt like it’s the plague and swear it is not acceptable under any circumstances.

I’m not one of those people and many wealthy people aren’t either.

Like money, credit is a tool that can accelerate wealth building.  However, if these tools are not used responsibly, it can significantly stall and/or destroy your financial growth.  The key to using credit to build wealth is to pay as little interest as possible and purchase assets.  It should not be used to fund your lifestyle.

Advertisers want you to do the latter.  They want you to fund a vacation or remodel your home, but those items don’t put money in your pocket.  Use cash for your vacation and save your credit for a great investment opportunity.

In this article, credit is defined as any product that will allow you to leverage other people’s money to include, but not limited to lines of credit, loans, and credit cards.

In the article, “How I Owned 3 Rental Properties in Less Than a Year”, I shared how I used this strategy to build my real estate portfolio.

According to credit.com, a good credit score is between 700 to 749 and excellent credit is 750 or higher.  A good or excellent score will result in lower financing options.  Anything below 700 will receive higher interest rates.

The goal is to achieve at least a 700-credit score.  Below are 4 reasons how good credit can accelerate your wealth building journey.

Access to Lower Interest Rates

With good credit, you can demand better interest rates to purchase high dollar items such as a home or a car.  Banks will even pre-qualify you for loans rather than you hoping the bank will approve you.

If you already have some debt and have good credit, banks may also offer you a 0 percent interest rate to transfer your balances over.  This is an easy way to pay off debt faster and minimize interest payments.

Note: When consolidating debt, consider the balance transfer fee as well.  If the balance transfer fee is excessively high then it isn’t worth the transfer.

With lower interest rates, you can save thousands of dollars over a lifetime.  Consider the interest on a $150,000 home with a 30-year mortgage.  If Person A has good credit they may receive a rate of 4.25 percent. Their monthly principal and interest payments would be $738, with total interest payments of $115K over the life of the loan.

If Person B has fair or poor credit, they may be offered a 6+ percent interest rate.  Their monthly principal and interest payments would be $900, with total interest of $174K over the life of the loan.

That’s a little over $150 a month and over $60K more interest over the 30-year period.  Person A has the advantage of investing the difference in the market while Person B is paying interest to the bank.

In this scenario, a $150 investment for 30 years with a 6 percent rate of return could result in close to $150K. Check out this compound interest calculator here.

The interest spread for a car could be even greater.  For those with mediocre credit, some finance companies will quote as high as 19 percent, whereas a person with an excellent credit score can receive 0-3 percent.

Remember, the key is to pay the least amount of interest as possible and earn interest on the difference by investing it.

Eligible for More Job Opportunities and Promotions

Several employers are relying more and more on credit checks as criteria to select a candidate.  This means having poor credit can hinder your ability to earn more money.  Even if you get the job, when you apply for a promotion they may require you to be financially stable and with good credit in order to qualify.

Your goal should be to earn as much as you can, so you can invest as much as you can, to accumulate wealth.  If a job is a part of your income stream, don’t block your blessing to earn more by not taking credit seriously.

Pay Lower Insurance Premium Costs

Unless you live in California, Hawaii, and Massachusetts, auto insurance companies may evaluate your credit to offer higher premiums for those who do not have stellar credit. Insurance companies justify this decision based on probability and history.

The theory is that a strong credit score demonstrates a history of someone that honors their word and manages their resources appropriately, whereas someone who has a lower score may not. Additionally, for those with the lower score, it may indicate that they are more likely to file claims.  Now, this may not be true for everyone, but insurance companies could use this general approach to charge you more.

Consequently, you must pay higher premiums, resulting in less disposable income to invest.

Qualify for Business Credit Faster

Do you have a business idea, but not the capital to get started?

Most businesses never get off the ground due to lack of capital/money.  Having access to business credit could accelerate your business by enabling you to purchase office space, inventory, capital equipment, or pay salary in between invoicing.

Another advantage of business credit is it is a separate report from your personal accounts.  This credit is linked to the businesses’ Employer Identification Number (EIN) number and these accounts will not be reported on your personal credit report.

By having strong personal credit, you can skip the first few steps of building business credit through trade lines and store credit cards, which could take 6 to 24 months.

Instead, if you have good credit, you can qualify for business loans, credit cards, and lines of credit through your personal history to get your business off the ground.  Businesses will rely on your personal use of credit to justify a low risk of default. This could be a game changer if capital is needed to fund your business.

Again, business credit does not report on your personal credit report which allows you to keep your personal and business transactions separate.

Final Thoughts

Having poor credit makes wealth building harder because everything cost more and it could prevent opportunities to earn more money.  If you are in this situation, it’s time to make a change.

Using credit to build wealth, if done responsibly, can accelerate your wealth because you do not have to rely on your own means to grow.  Two is better than one, right? How about many compared to one?  The power of leverage is key, however, you have to put yourself in a position to capitalize on it.

That means getting serious about credit.

The end game is to be able to leverage credit when you need it.  Even if you choose not to use credit, it is better to eligible before you need it.

One of my mom’s favorite sayings is, “It is better to have and don’t need, then to need and don’t have.”

This applies to having access to capital.

To make sure that you can position yourself to receive capital, you need to be aware of where you stand.  Did you know the government offers a free credit report EVERY YEAR from all 3 credit bureaus?

ACTION: Check your credit report for FREE here.  Verify that there are no errors on the report and develop a plan to pay down your balances.

Now that’s getting your FINANCES ON POINT.