Credit Management

Anna Spooner
Credit Management

Managing credit is about using money responsibly and building a strong credit history. It can seem like a big job, but it's vital. Everything from finding a place to live to making major purchases to getting insurance is affected by your credit standing. The good news is, once you set up a system for credit management, you just have to invest a small amount of time maintaining it.

Know and Build Your Credit Score

The first step in credit management is to know where you're starting. Finding out your FICO credit score will help you know where you stand.

Several factors that affect credit scores, including:

  • Payment history
  • Amount owed
  • Credit history
  • Number of new credit lines
  • Types of credit accounts

Once you know where you're starting, you can take steps to build your credit up if necessary. If your creditworthiness is already excellent, good credit management can keep it that way.

Use Credit Wisely

There are several steps you can take to manage your existing credit and keep debt under control.

Maintain a Budget

Creating a budget helps you know how much money you have coming in and how it's being spent. A budget will help you understand if you need to make changes to your spending habits or perhaps work additional hours. You can use a sample budget form to get started on creating your own household budget.

Set Payment Reminders

Paying on time is a major part of keeping your credit score in good condition. Life is busy, and it's easy to forget when you have a credit payment coming up. It can help to schedule a reminder on your calendar or phone to review your bills at specific times. Many credit card companies offer payment alerts as well, which can help you stay on track.

Pay More than the Minimum Payment

Credit card bills will show you the minimum amount you have to pay on the due date, but it's important to pay more if you can. Paying minimum payments will extend the amount of time you owe, and will cost you a lot of money in interest.

Pay your credit cards off each month if you can. If you can't, try to pay more than the minimum payment. You can save money on interest by putting extra money toward your mortgage and car payments as well.

Limit Available Credit and Debt

It's easy to end up with more available credit and debt than you realize, and it can happen quickly. Almost every retailer offers store credit cards and entice customers to open accounts with discounts or other special offers. Many furniture stores and other providers of expensive goods offer store financing with no down payment and low interest rates (often zero). While these may seem like a good deal at the time, things can quickly get out of hand.

Both available credit and total debt can impact your creditworthiness. It's hard to say how many credit accounts are 'too many' since lenders have varying standards. However, having a lot of available credit shows lenders, such as mortgage banks, that you are at a high risk to overdo your debt. Further, having a lot of available credit can quickly turn into a lot of debt, which can cause problems quickly. To effectively manage your credit, it is ideal to keep your debt-to-income ratio at or below 36 percent.

Find the Right Credit Offers

When you need to use credit, it's essential to shop around and find the best deals. There are several kinds of credit that you may need from time to time.

Credit Cards

When used properly, credit cards are an excellent way to develop a strong credit history. You can use credit cards to finance major purchases, or simply to earn rewards on purchases you make already. You want to check a variety of banks and credit offers before deciding on one. Be sure to look for the lowest interest rate for your situation.

Mortgages

Couple looking at house

Buying a home is a dream come true for many people, but a mortgage is a major commitment. Be sure to shop around to get the best mortgage. You want to compare interest rates, fees, and more. It's also important not to buy a home that you cannot comfortably afford. Just because a bank approves a loan doesn't mean it's the right amount for your budget.

Car Loans

Buying a car can be a nerve-wracking experience, but there are many ways to make sure you get the best financing deal. The loan you're offered at the dealership may not be the right one for you. Be sure to check local banks and credit unions, and don't be afraid to negotiate the car loan rate with the dealer.

Avoid applying for several different lines of credit at one time. Each one affects your credit, and having several in a short time can be a red flag to lenders. Instead, compare credit offers before you apply, and only go for the one that is right for you.

Keep Your Credit Secure

When you've are managing debt wisely and have chosen appropriate credit accounts, you've done a lot to keep your credit in good condition. However, there are also security concerns that you should keep in mind.

Protect Your Personal Information

Keep Credit Secure

You should always keep your personal information safe. Never share your bank account, social security number, or credit card information with someone who calls you on the phone or sends you an email. Don't click on links in emails you don't recognize. Shred personal documents before throwing them away, and don't enter private or financial information on unsecured Wi-Fi networks or public computers.

Review Your Credit Report

You can also keep an eye on your credit report. You can receive a free credit report every year. It may not have your credit score on it, but it will have other important information. Be sure to look over the full report to make sure there are no errors or unauthorized accounts. If there are mistakes, contact the credit bureau and let them know.

Report Identity Theft Promptly

If you believe that you are the victim of identity theft, it's important to report it right away. You'll need to contact the Federal Trade Commission (FTC), your credit card company, and the local police. You also need to report the problem to the Internal Revenue Service (IRS), since a stolen social security number can be used for tax or employment fraud.

Get Help with Credit Problems

Financial problems affect everyone, and sometimes they can wreak havoc on your credit. If you've made some mistake or hit hard times and now your credit is suffering, don't panic. There are a number of options available.

Cut Spending

The first step to take is to save money any way you can. There are dozens of tips available for how to cut costs, from changing your transportation situation to finding deals on daily purchases. Sometimes buying in bulk makes sense, and you may be able to save money by creating things at home that you would normally purchase. When you cut your expenses, you'll have more money to handle your debt.

Debt Consolidation

Consolidating your credit card debt can help you combine several payments into one. You may also be able to get a lower interest rate, which will help you save money. Debt consolidation offers vary, so be sure to compare several before making a decision.

Debt Management

A debt management or debt settlement program should be considered only if you cannot keep up with your payments. With a debt management program, you pay into an account with the debt settlement company rather than paying your creditors. Over time, as your balance builds, the debt settlement company makes offers to your creditors to eliminate your debt for less than you owe. Of course, falling behind on payments will damage your credit, but you may be able to get out of debt more quickly.

Make sure you understand all fees, as debt management companies typically charge a percentage of your total debt. It's also important to carefully research programs before you enroll, and never pay an upfront fee. Unfortunately, debt management is an area full of fraud, as criminals prey on desperate consumers.

Bankruptcy

Bankruptcy should only be considered as a last resort. It will damage your credit and the negative impact will stay on your credit report for seven years. If you do declare bankruptcy, it takes a lot of time and patience to rebuild your credit.

Manage Your Credit Wisely

When you look at managing your credit, it can seem complex. However, a lot of credit management just involves keeping up with payments and obligations. Maintaining a budget and only taking out credit you truly need is essential. You should also take great care to protect your personal information. If something goes wrong, you can recover, but it can take a long time. It's better to focus on excellent credit management.

Credit Management