Good Credit with Unicorn Cake

Something can be good and bad at the same time.

I’ll give you an example. This weekend, we hosted a birthday party for my five-year-old daughter. She wanted a rainbow unicorn theme.

When asked what she wanted for a present, she would unhelpfully respond, “No clue.”

OK, great.

Fortunately, the local toy store was stocked with rainbow unicorn items: puzzles, books, stuffed animals, craft kits, etc. The kids at school must be on the same page with their interest in rainbow unicorns this year.

The rainbow unicorn party went well. We started with pizza, decorated cupcakes, and had a unicorn egg hunt.

The highlight of the party?

The birthday cake.

We ordered a rainbow unicorn cake from one of the most popular bakeries in Chicago, Sweet Mandy B’s. The next time you’re in Chicago, do yourself a favor and pop in for a cupcake or cookie.

After singing “Happy Birthday,” I started cutting pieces of cake for the kids. A few jumbo pieces of cake later, one of our guests came to my rescue and showed me how to cut smaller, kid-appropriate pieces.

It’s a good thing she did because with the way I was cutting the cake, we were going to run out before all the adults got a piece. And that would have been a bad thing.

See, this cake was incredible. I’m not always a cake guy (unless it’s ice cream cake), but this one was special.

Vanilla confetti cake with buttercream frosting. It had the perfect balance of cake and filling. Sweet, but not too sweet. Soft and also firm.

It wasn’t just me. I never saw a cake disappear so fast. Usually, we end up with so much cake leftover that I’m sneaking bites every time I open the fridge for the next week. Not this time. Sadly.

By the end of the party, we had barely a single piece left (which was devoured within 24 hours).

There is a bright side to finishing the cake, though.

If I had an unlimited supply of this cake, I’m not sure I could stop myself from eating it. The temptation would be too strong to sneak back to the fridge all day long, fork in hand. One little bite at a time.

It’ll be fine.

What does birthday cake have to do with personal finance?

You know where this is going.

Eating a wonderful cake at a birthday party is a good thing.

Eating cake every day for the next week, no matter how good it is, would be a bad thing.

You see? Something can be good and bad at the same time.

And that leads us to our next major topic in the blog: the responsible use of credit.

What is credit?

Credit refers to an agreement to borrow money with the obligation to repay that money later, usually with interest. In this context, think of “credit” as another way of saying “debt.” When you use credit, you’re taking on debt.

Credit also refers to a person’s trustworthiness or history of repayment. When someone has “good credit,” it means they have a reliable history of repayment.

It’s important to always remember that credit and debt go hand-in-hand. That’s why before we discuss how credit can help us, we learned scary stats about debt. We discussed three big reasons why we’re in debt. And, in a preview to our conversation on credit, we learned the difference between Good Debt and Bad Debt.

We typically rely on credit for big purchases.

We typically rely on our ability to borrow money, or our credit, to make our biggest purchases in life. When you take out a mortgage or finance a car purchase, you are relying on your ability to borrow money to make that purchase. That ability to borrow money is known as credit.

If you have a history of responsibly borrowing money and paying it back on time, a lender is more likely to lend you money.

On the other hand, if you have a history of falling behind on payments, a lender may choose to not lend you money. Or, a lender may charge you higher interest rates to compensate for their increased risk.

This could end up costing you lots of money.

Poor credit will cost you more than just money.

Besides just financial consequences, a poor credit history can also lead to lost opportunities.

As an example, it’s common practice for landlords to check an applicant’s credit history before renting them an apartment. It should be no surprise that landlords are hesitant to rent apartments to people who have a poor track record of paying for things.

These reasons, and other reasons we’ll soon discuss, illustrate why it’s so important to responsibly use credit.

In our initial series on credit, we’ll discuss:

• The basics of credit reports and credit scores and why they each matter.
• How the responsible use of credit cards can fit into our personal finances.
• What you need to know to maximize the benefits of credit card reward programs.
• How to use other forms of credit, like a Home Equity Line of Credit (HELOC), to accelerate your progress towards financial freedom.

By understanding what credit is and how your credit history is tracked, you’ll gain the confidence to use credit responsibly as part of a healthy financial life.

I am in favor of the responsible use of credit.

As I previewed in our discussion on Good Debt, I’m in favor of people responsibly using credit as part of a healthy financial life.

That applies to our every day choices, like using credit cards to track our spending. It also applies to other forms of credit, like Home Equity Lines of Credit (HELOCs), to acquire assets. We’ll discuss these and other benefits of responsibly using credit in our upcoming posts.

The important caveat, however, is that like the Sweet Mandy B’s birthday cake, we have to know when a good thing can become a bad thing.

If we abuse the privilege of credit, the consequences can be severe. I abused the privilege of credit cards at the beginning of my career, and it took years to dig out of the hole.

By understanding how credit works and how your credit is tracked, I hope you can avoid falling into a similar mess.

I want you to happily enjoy the cake without the potential negative consequences.