You can take charge of your credit by following some very basic actions — some of which have an element of fun and inspiration. You can harness the power of credit to your advantage:
Borrowing when it suits your needs without paying outrageous interest rates
Taking advantage of lucrative lending offers such as “same-as-cash” and “no-money-down” offers typically available only to those with stellar credit histories
Achieving your life dreams, whether owning that vine-covered cottage or sending your offspring to an Ivy League university
It all begins with the simple steps in the next sections.
Your financial goals serve as a beacon to you and keep you on course. You’ve heard the saying “If you don’t know where you’re going, any road will take you there.” Well, if you don’t have clear objectives when it comes to how you want to spend and save your money, you risk veering off on that rocky and perilous path to bad credit. Your goals — whether as grand as starting your own business or as modest as buying a new refrigerator — help you keep your eye on the horizon and guide you to your destination.
Call it a spending plan, if you like, but however you refer to it, be sure to see it as a positive enabler, rather than a restriction or a barrier. The purpose of the budget is to get you to arrive at your goal. If, for example, your goal is to take a beach vacation next year, putting money aside each paycheck and limiting spending on restaurants and clothing are as important in getting you there as filling the gas tank and turning the car on the highway that leads to the shore.
Start with an understanding of how much income you have to work with, and then allocate it as necessary for living expenses. If you have debt, set aside part of your income to retire that debt just as quickly as you can.
Then, just as important as your expenses and debt commitment, be sure you contribute to your own savings plans: one toward an emergency fund (in case of job loss or illness, for example); the others, for your goals (your kids, your honey, your retirement). Make saving as automatic as possible (an IRA or 401[k] for retirement, for example); the money can come right out of your paycheck. Use payroll deduction as an easy way to do this — and try to put at least half of your future raises in savings. You can spend the other half.
Like your annual medical exam, this data serves as your routine credit checkup — only you’re wise to schedule this exam every four months. Get it more often if you have a need — a big purchase on the horizon or a job change, for example. Pay for it, if you have to. It won’t kill you.
Read your credit reports — every word. Errors do happen and when you’re dealing with billions of pieces of data a month, they can happen a lot. Do you count your change when you check out at the supermarket or a restaurant? Your credit report is no small change. Dispute the errors, outdated information, and negative stuff that belong to someone else’s report.
Check for signs of identity theft and take immediate action if you discover evidence that someone else is using your good name. We will later address identity theft in detail.
You’re already so many other good things: a good person, a mother or father, a boyfriend or girlfriend, a spouse, a sibling, a worker. Do you really need someone telling you to be a good borrower, too? The answer: Yes.
I bet you knew I was going to say that, didn’t you? The reason is not about you, but about the environment you’re in. Taking the credit that is offered, using the credit that is offered, even not using credit at all can get you into trouble. So how do you know what’s “good”? You weren’t born with the credit gene that enabled you to understand the correct road to follow like so many migrating birds.
Being a good credit citizen means being responsible as a borrower, responsible to yourself and those who share your life. This starts with goals, a future vision of your life and knowing which financial tools to use, in what measure, and when.
Have a spending plan or budget.
Use long-term credit for long-term uses. Don’t use a home-equity line to buy sneakers or eat out.
Use short-term credit for short-term uses. Pay off your credit-card balances as quickly as you can.
Save money for future goals and needs.
Pay your bills on time.
Pay at least the amount due. Always set a time by which you will pay off a debt; don’t let the creditor set the time for you, because it may be forever.
Watch out for the seven warning signs of bad credit:
o Using credit cards for daily expenses and not paying the balance every month
o Not knowing how much you owe
o Using cash advances to pay credit-card bills or for daily expenses
o Only paying the minimum due on credit cards, or paying less than the minimum
o Getting calls from your creditors
o Spending more than 20 percent of your take-home pay on credit payments, excluding your mortgage
o Arguing about money at home
Never fight over credit or money.
Get help as soon as you think you may need it — not as a last resort.
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