Growth & Jobs | Credit can be a tool for growth, not a burden 

Financial education consultant at the JN Foundation, Rose Miller, is encouraging consumers to rethink the common belief that credit is inherently “bad”, noting that, when used responsibly, it can be a powerful tool for achieving long-term financial goals.

Speaking at a recent financial empowerment forum hosted by The JN Group for members of staff, Miller said borrowing can be beneficial, particularly when it supports income-generating activities such as starting or expanding a small business.

“Borrowing can be a good thing when it’s tied to building an additional stream of income,” she said. “The important part is knowing what the money is for and how you’ll repay it, even if sales are slow.”

Miller explained that business-related borrowing is most effective when it is directed towards a specific purpose, such as purchasing equipment, stocking inventory, securing licences, or funding marketing efforts and, when projected, revenue can comfortably cover repayments. 

She urged borrowers to calculate the full cost of loans, including fees, and to “stress-test” their repayment plans, taking into account eventualities such as a decline in income, rise in interest rate, or unexpected increase in expenses.

Miller went on to point out that, “A lot of financial stress comes from misunderstandings about what a credit limit means, the real impact of making just minimum payments, and how lenders calculate interest.” 

She emphasised that a higher credit limit should not be mistaken for increased income but rather seen as additional borrowing capacity that must be managed carefully. Consumers, she advised, should pay attention not only to interest rate but should always seek clarity on how interest is calculated and, further, be familiar with the total repayment amount over the life of the loan. “Get a ‘big picture’ view” of the transaction, she asserted. 

In addition to business financing, Miller pointed out that another strategic use of credit would be to support education and homeownership.

“A well-structured education loan can be an investment in your earning potential and future.  As with any other loan, borrowers should ensure they fully understand the terms and conditions,” she said.

Addressing common misconceptions, Miller highlighted several important truths about credit:

• Checking your own credit score does no harm, as this is typically considered a soft inquiry. However, enquiries from lenders are regarded as hard inquiries and, when these are repeated frequently because of multiple loan applications, your credit score may be negatively impacted.
• Having no credit history is not necessarily better than having credit, because lenders depend on that history to assess your track record of responsible borrowing and creditworthiness.
• Paying only the minimum on credit cards not only prolongs the debt but significantly increases the total interest paid, particularly if new charges are consistently being added.

Miller further recommended that borrowers:

• Ensure their budget can accommodate the repayment amount, including principal, interest, and fees
• Check for penalties related to late payments and, sometimes, even early settlement 
• Distinguish between what they can borrow and what they can realistically afford
• Ensure that the purpose of the loan is to build long-term stability and enhance their financial well-being rather than to fund short-term spending.
• Save interest monthly by paying the full amount due on loans, especially on credit cards

In her final charge to team members, Miller encouraged them to be intentional about increasing the level of their financial education, “Learn something new every day and take action on the information gleaned,” she urged.   “And go a step further, too. Share the knowledge so that, over time, we will all benefit because we’ve made wiser financial decisions.”