Credit is complicated. To put it simply, credit is the ability to borrow money based on promise of a future repayment. It also means a person’s reputation for paying bills. There are a few simple things you can do to manage it properly.
Create a monthly budget. Before you even try to start developing credit, you need to have a budget in mind. If you don’t, your credit could quickly get out of hand. So make a list of your monthly income and all your monthly expenses, and be sure that they even out. Better yet, end each month with an income surplus.
Be qualified. Now that you know what you’re buying with credit, and how much it will cost, you can move on to developing your credit. In order to even qualify for credit, you need a reliable financial history. In other words, you have to have a reputation for paying your bills on time, a source of income, and some assets if things go south. Make sure you can handle life without credit before you try to handle a credit card!
Look at your options. Now comes the fun part – holding the plastic in your hand. There are actually a couple versions of credit to look into – secure loans, which are backed by collateral, installment loans with monthly repayments, and unsecured loans based on credit-worthiness. Credit cards are the most common form of unsecured loans.
Pick what’s right for you. If all you want is a credit card, a good place to start looking for one is at your bank, if they offer a card. For people starting out, stores such as Target and Kohl’s offer credit cards that most people can qualify for. Other places you can get a card and/or loan are from finance and life insurance companies.
Exercise caution. Having a credit card means you can go out and buy a bunch of stuff right away. Don’t. It’s important to stay well below your credit card limit, or cap on spending. If you spend close to what your limit is, your credit score will go down.
Keep your credit report in mind when using credit to buy anything. A credit report is based on your credit history – whether or not you have paid your bills on time. This information includes monthly credit and loan payments you have had for the past seven years. Lenders look at it when deciding if you qualify for a loan. Don’t get stressed out. Just don’t mess up, either!
Limit yourself to one card. Having more than one tempts you in ways you do not want to be tempted. If you do have several credit cards, manage them carefully.
Remember that credit cards are a convenience. Having one doesn’t allow you to purchase things you can’t afford.
Always pay more than the minimum monthly payment. Always do it, I’m serious. If you can, go so far as to pay off your bill in full every month.
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Keep your credit card receipts. That way you can verify the accuracy of your monthly statement. Banks make mistakes, too!
Notify your bank if you move. Late fees can happen needlessly if you don’t get your bill on time because, oops, it was sent to the wrong address.
Immediately notify your bank if your credit card has been lost or stolen. That way you won’t be held liable for any unauthorized charges.
To be on the really safe side, make a copy of your card and keep it in a safe location. That way you have all your card information in case of loss or theft.
The worst thing you can do is ignore credit problems. First, stop using your card.
If you have any issues that might affect your credit, call your creditors right away. They might be able to temporarily freeze or reduce payments. The sooner you call, the more they can help keep your record clean.
Make sure you pay your bills on time. This is really important. If you don’t, you could get stuck with late fees, frozen credit, and even legal action or lost property.
Just making the minimum monthly payment on your credit card will ensure that you are paying it back for the rest of your life. Getting out of debt = paying more than the minimum.
Bad credit history can affect your employment history because companies have access to your credit report.
Any lender or future employer looks at your credit report as part of a normal background check. This could affect your ability to get a mortgage, and even change your finance rate (interest) on major purchases.
There are several costs to look out for. Credit cards often come with annual fees, interest rates, late fees, over-limit fees (for when you charge above the set maximum), and cash-advance fees for whenever you request cash on credit.
It’s best to steer clear from cash-advancements in general due to the high interest rate on those loans.