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Why Rethink Credit?

By Dave - Posted on 08 May 2008

The core elements of personal finance include earning, spending, investing, and credit.  All these have changed substantially over the past generation.  But credit has been the most radically transformed, over both over past decade and then during the past year.  What are the generally recognized "rules" concerning the use of personal credit? A fair summary would probably include something like the following claims.

1. People shouldn't apply for more credit than they need. This is partly because:

2. Access to excessive credit allows Americans to spend irresponsibly.

3. The credit limit granted to successful new applicants should be based primarily on their income, since income indicates what they will be able to pay back.

Rules like these find root in a general sense that credit is little more than a "necessary evil", used irresponsibly by most, and to be avoided as much as possible. was born partly out of the belief that these rules and attitudes do not serve most borrowers well. Credit is a powerful tool that can cause severe damage if misused. But it can also play a major role in obtaining financial success for those who carefully harness its potential.

The past decade saw a surge in offered credit. Most Americans were flooded with new credit offers, sometimes with unusually attractive terms. Then in the past year, the credit markets seized up, interrupting the flow of credit to millions, and leaving the future cloudy. In this environment, thinking carefully about credit has grown more important than ever.

In the weeks and months to come, I'll be commenting on the why cultivation of significant credit is more important than in prior eras. I'll also examine how people can use their credit in ways that actually shore up their financial position.


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