Your Financial Health- Creating And Maintaining Good Credit
Article 8 of 11: Surviving Consumer Debt
Your Financial Health: Creating & Maintaining Good Credit
Good credit doesn't just happen - you have to work at it. Review the tips below to make sure you're on the right road.
If you're new to credit, there's a whole new world opening up to you - as long as you make wise decisions. And if you already have credit, you know how important it is to keep on top of it. Managing credit can be a challenge - but it's a very important life skill and should be treated as such. Learn what you need to know to build and maintain a healthy financial history.
Creating Good Credit
The best way to stay out of debt is to stick to a budget and track your spending. Sure, it's not glamorous, but it works. By doing these things, you'll have better control of your finances, decrease your chances of serious debt and build a good credit standing. Here are some other things you can do to build a good credit reputation:
- Review your monthly bank statement. Make sure there are no discrepancies.
- Pay creditors on time. If something totally unavoidable happens (serious illness, natural disaster, etc.,) call your creditor to explain what happened and let them know your payment is on the way. Usually if you have a history of on-time payments they will work with you.
- Always pay at least the total minimum payment due - but try to pay more. In fact, pay down balances as much as you can each month.
- Be mindful of your credit limit. This is shown in the 'Available Credit' portion of your statement. Exceeding your credit limit can cause over limit fees to accrue.
- Resist large impulse buys. Instant gratification is great, but these purchases are usually difficult to pay off. Save for the item instead.
Maintaining Good Credit
If you're a seasoned credit veteran, you probably already know about the allure of credit's easy purchasing power. Even though it seems so easy to plop down a credit card to pay for a large purchase, it's rarely the wisest course of action for your long-term financial health. Here are some things that will help you maintain good credit if things are beginning to get out of hand:
- Limit your credit card use to emergencies. Those balances won't go down if you continue to add to them.
- Create a payment plan and decide which bill you will pay down first. Apply as much extra as you can toward that debt, and once it's paid off, add that amount to the next debt.
- Continue to pay all bills on time.
- Negotiate lower interest rates. If you're serious about keeping your credit rating where it should be - or want to get it back where it should be - many lenders will work with you on lowering interest rates, especially if you have a solid payment history.
Check up on Yourself
Whether you have just a small amount of credit or have been dealing with credit for decades, you should regularly check your credit report. After all, it's all about you, so you need to know what's on it. Most lenders will use the information in a credit report to evaluate your creditworthiness. Credit histories are maintained by a reporting agency, which is a company that gathers, files and sells information to creditors and/or employers to help them make credit or employment decisions.
Negative credit information remains on file for seven years (10 years for bankruptcy information) and can greatly limit your credit options. That's why it's so important to maintain a good credit history today - you never know when you'll need it down the road.
What's in your credit report?
- Personal information
- Payment history
- Late payments
- Inquiries into your credit history
- Bankruptcies, lawsuits or liens
That's a lot of important information, and that's why it's important that you check it regularly. You should know what negatives are included on it, and also check for errors or things that were inaccurately reported. The National Foundation for Consumer Credit (NFCC) suggests you check your credit history at least once a year. You can order your credit report from Equifax, Experian or TransUnion, or utilize free online services to see your credit history. If you see anything that doesn't look right, you should contact the credit bureau immediately.
What you do with your credit today will affect you for years to come. Make sure you're cultivating habits that will build and maintain good credit for a lifetime.
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