Good vs. Bad Ways to Use Credit

couple shops online with credit card

Credit is a powerful tool that enables you to build a good credit history and finance large purchases and investments (such as buying a car or home) with ease.

However, the convenience of being able to use a credit card or financing at your disposal can make it rather tempting to spend beyond your means. The important thing about using credit is having the discipline and funds to pay back what you owe. Otherwise, you may find yourself trying to dig your way out of debt.

Keeping this in mind, here are some good and not-so-good ways of using credit.

Good Uses of Credit

  • Build a good credit history
    Credit cards or applying for a subprime loan or financing are a couple options people with bad credit or no credit can take to build or rebuild their credit history. The key to building and maintaining a good credit history is paying your bills on time, keeping your credit card balances low, using less than 30 percent of your credit limit and monitoring your credit reports for any errors or fraudulent charges.

  • Use a credit card for emergency
    While having an emergency fund is recommended, there are unexpected incidents that can occur and may require more funds than you have readily available. Using your credit card for emergencies only is a good way to control your usage. However, you want to make sure that you are making your payments on time to build a good credit history.

  • To purchase a car or a home
    Mortgages and car loans or financing are examples of credit installment plans, which are also a good way to establish and build credit. Again, the key is to make your payments on time. Dealers enrolled in the Credit Acceptance program can approve every customer regardless of credit, which can help consumers build a good credit history with on-time payments.

Bad Uses of Credit

  • To extend your income
    Constantly using credit cards to pay for purchases you can’t afford to make in cash can be risky, especially if you don’t have a repayment plan. Continuously carrying large revolving balances on high-interest credit cards is the easiest way to rack up debt.

  • Impulse spending
    Large impulse purchases could put you in jeopardy of accumulating large amounts of credit card debt, which could cause your credit to take a negative hit.

  • Making purchases without a repayment plan
    Having a spending limit and repayment plan is crucial when you’re making purchases you can’t afford to pay in cash. Otherwise, you run the risk of falling into serious debt.

If you are in the market to purchase a vehicle and need to get approved for financing, a car dealership enrolled in the Credit Acceptance program can help. Simply fill out the form on our website to start your credit approval today!