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Risks and Rewards
There are many rewards for handling your credit well. You may be able to improve your lifestyle through purchases that are only possible with credit, utilize services that are only available if you have a credit card renting a car for example and have the resources to pay for unexpected emergencies. However, there are risks. Poorly managed credit can land you deeply in debt, and recovery is not easy. The rules of credit are few and simple. A lender extends you a line of credit. You agree to pay the lender back the amount you spend plus finance charges and perhaps additional service fees. A payment schedule is set up and you are required to make payments according to that schedule. The most important advice is, pay your bills on time!
Tips for using credit
When you are extended a line of credit, use it, but use it carefully. Be certain your account is reported to a credit reporting agency. Most importantly, make your payments on time.
Set up a budget and stick to it. You need to be aware of how much debt you already have and how much you are adding to that debt by buying with credit.
Once you have signed a credit agreement, you are responsible for it unless the creditor agrees to release you from the agreement. That not only includes credit cards or installment loans, but also health club agreements and cellular telephone contracts, even if you stop using the service. Remember also that a divorce decree does not release you from responsibility for joint accounts.
Protect yourself from credit fraud. Treat your credit cards like cash. Sign them as soon as you get them. Don't leave them lying around. Shred receipts that have your account number on them and do the same with credit offers you receive in the mail but choose not to accept. Look over your credit report once a year.
Create a positive credit history
Your credit report shows how well you managed your financial responsibilities during a certain period of time. Negative information drops off over time, but the positive information remains. To create a positive credit history: Print clearly when applying for credit.
Consistently use your complete name. Providing complete, accurate and consistent identification on your credit applications helps set up your credit history correctly from the beginning. It also minimizes the chance that your credit file will be incomplete or mixed with another consumer's file.
Pay your bills on time. Most lenders look at the most recent information on a report. So if you've paid your accounts on time for the last two to three years, the lender may weigh that more heavily than a series of late payments from five years ago.
Set up a budget, and live within it. In the age of self-help and empowerment, managing your finances should top your list.
Review your credit report 60 to 90 days before making a major purchase (such as a home or car).
Getting help
If you begin to fall behind on your payments: Contact your lenders. Ignoring the situation will only add to your problems. Many lenders will work with you to set up a different payment schedule or interest rate. It never hurts to ask.
Pay your bills when they're due. If you have an overdue bill, unpaid debt, tax lien or judgement, pay it off. You may find it easier to pay one affordable consolidating loan rather than several separate accounts. Stop using credit until your finances are under control.
Look to professionals if you need assistance or if you don't have time to develop your own plan. Quality nonprofit credit counseling organizations help consumers understand credit reports, contact creditors, manage debt and set up budgets. You might also find credit management help at your local community college or community center.
Nonprofit Credit Counseling
The National Foundation for Credit Counseling (NFCC), a nonprofit organization of credit counseling agencies, can provide guidance and services to help navigate through uncertain financial times.
How can the NFCC Help?
- Eliminate or reduce credit card payments
- Counsel you to improve your financial health
- Lower your interest rates regardless of your credit score
- Help you pay off your debt faster with a debt management plans
