At times when we feel like we, and our credit, are down in the dumps, we begin to wonder if it is our income, or our job that is dictating our credit score.
Although, more income can be helpful when paying bills, and of course this includes loans, credit cards, medical bills, and car payments, more income can sometimes lead to more problems.
Believe us when we say this is not us telling you not to strive for more in life, because we all should. This is us telling you to be more prepared. All of us at some point or time have gone from a job making no money to a job making more money. We may not be making millions, but we are making more than we were.
A lot of times this causes us to have excitement because we feel like we can now afford more things, or even keep up with our peers. Often this can lead to us over exerting ourselves with our spending. We sign up for the best cable packages, and the fastest internet, and maybe even buy a bunch of new clothes and appliances. We work hard for this and we deserve it. This is where we must be careful.
When we get an increase in income we do not need an equal, or greater, increase in spending, or we will find ourselves owing more than we can earn. This goes the same with credit.
It is very easy for us to get that first credit card and think I can just pay everything off, and spend until we cannot spend anymore. When we do this it hurts our credit. Having 50% or higher credit utilization (the percentage of of our total credit limit we are using) it begins to negatively impact our score.
Our score will not go back up as long as we have a high utilization. The higher the utilization, the higher the impact on our score. Then, once we have begun to spend more than we are making we start having late payments. Late payments result in more negative impacts towards our credit score that was once good.
Now we are not saying not to spend more money, but we are saying when you change jobs, or get a raise, use that to your advantage and pay down debt, or save the money that is now extra. You will be better off in the future for having saved some rather than spending it all.
The truth is, you can have a low income and a high score, just as easily as you can have a high income and a low score.
