Question

2. Good uses of credit

Although you should strive to keep your debt to a level appropriate for your financial situation, there are several good uses of credit. Which of the following are good uses of credit? Check all that apply.

__ Obtaining a mortgage to purchase a home.

__ Obtaining a student loan to finance your education.

__ Using credit to pay for unexpected expenses such as emergency medical services or automobile repairs.

__ Using a credit card to protect yourself against seller rip-offs and frauds.

__ Taking advantage of free-credit promotions such as a reduced interest rate or a “same-as-cash” plan.

__ Using one credit card to make payments on another credit card.

__ Using a loan to open a business.

__ Using a credit card to pay for groceries or gasoline when you cannot afford to pay the balance in full each month.

__ Using a credit card for convenience, but only if the balance is paid in full each month.

__ Purchasing an overly expensive or otherwise unaffordable vehicle.

__ Using a credit card for hotel or car rental reservations.

Answer 1

Credit in the most general sense is the ability to borrow money with the understanding of later payment. Living life on credit is not deemed good. However, there are several good uses of credit discussed below :

(I have written YES and NO before every statement. Every statement with a yes can be checked )

_YES_ Obtaining a mortgage to purchase a home.

Reasoning: Obtaining a loan to buy a house is considered to be a good act as houses are seen as an investment that can help you deal with contingency if arrived at later stage. Thus it is good to use the credit against buying a house

_YES_ Obtaining a student loan to finance your education.

Reasoning: Probably, one of the finest use of credit is to invest in yourself. Education helps you grow further. Thus it is a an investment which can help you reap benefits at a later stage.

_Yes_ Using credit to pay for unexpected expenses such as emergency medical services or automobile repairs.

Reasoning: Credits can be used to deal with the unavoidable circumstance that pops up, medical services, and automobiles being one. However, the same must be paid following the due dates.

_NO_ Using a credit card to protect yourself against seller rip-offs and frauds.

Reasoning: Credit must not be you protect yourself against such frauds. One must understand that fraud over your credit can shoot up your liabilities to the maximum limit. Hence one must be mindful when dealing with such acts.

_YES_ Taking advantage of free-credit promotions such as a reduced interest rate or a “same-as-cash” plan.

Reasoning: As long as you are aware of the freebies, it is fine to use credit whenever required.

_NO_ Using one credit card to make payments on another credit card.

Reasoning: Paying credit cards through another credit card doesn't reduce your liabilities and shows your inability to pay off the loan you took.One must not indulge in such activities

_YES_ Using a loan to open a business.

Reasoning: As long as you are confident about the business it is fine to use credit for higher returns at a later stage

_NO_ Using a credit card to pay for groceries or gasoline when you cannot afford to pay the balance in full each month.

Reasoning: One must only spend the amount he or she can afford. Using credit for buying something you are not able to pay off is a misuse of it.

_YES_ Using a credit card for convenience, but only if the balance is paid in full each month.

Reasoning: No harm in using credit as long as it is paid in full each month.

_NO_ Purchasing an overly expensive or otherwise unaffordable vehicle.

Reasoning: It is a complete no to use credit for something expensive and out of your budget. Hence the same must be avoided.

_YES_ Using a credit card for hotel or car rental reservations.

Reasoning: It is fine to use your credit card for hotel or car rental reservations as it provides certain benefits to credit cardholders.Hence, It is good to use the same for such activities.

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