How Can I Use Credit to Help Me Reach a Goal?

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In an effort to help readers better manage their finances, mental_floss has teamed up with personal finance expert and award-winning podcast host Farnoosh Torabi to answer your most pressing credit- and money-related Big Questions.

Reaching your financial goals can take time, effort, and careful planning. Because milestones such as buying a car, owning a home, and starting a business can come with hefty price tags, you can (and should) leverage the power of credit to help you achieve these goals, Torabi says. The caveat? Only if your credit is strong. “Those with top notch credit scores are in a great position to receive low interest rates on a variety of loans and credit cards, and that can help to reach your next stage in life,” Torabi tells mental_floss.

To get (and keep) your credit score high, you must manage your credit responsibly. And if you’re hoping to achieve a major money milestone in the next couple of years, it’s best to get on track now. “Be sure to pay as much as you can toward your balances every month, and on time,” Torabi advises. “Never miss a payment.” To stay on top of your bills, set frequent reminders for yourself, or better yet, consider automating monthly payments. And pay attention to your debt-to-credit ratio, which indicates how much credit you could be using at any given time. “Your debt-to-credit ratio is a key factor in determining your credit score,” Torabi says. “The lower your ratio, the better for your score.” To keep your debt-to-credit ratio low, avoid maxing out your credit cards and aim to use no more than 30% or so of your available credit at any given time.

Having strong credit is essential to get the best loans, but your savings matter, too. “Lenders prefer to offer the best interest rates to those with strong savings in the bank because it signals that the borrower is more financially secure,” Torabi says. If you have very little savings, not enough income, or too much debt, you may want to focus on saving money before applying for a big loan. And if you have concerns about your credit score, you may be better off postponing that big purchase you’re thinking about. “It’s better in the long run to take the time now to improve your score,” Torabi explains. “It will mean more money saved down the road in the form of lower interest rates.”