Once you get credit — like a home loan or a credit card — the most important thing is to keep control of it, so you can achieve your financial goals without getting too far into debt.
Manage Your Credit
Here are some tips for managing your credit:
- Keep track of your spending: Keep track of the checks you've written, credit card transactions, and ATM card usage. Review your monthly statements when they arrive, and report any possible discrepancies immediately.
- Don't exceed your credit limit on lines of credit and credit cards: Your available credit is how much credit you have left on a line of credit or credit card; it is your credit limit minus your outstanding balance. Be careful to keep your spending below this amount. Following the “20/10 Rule,” it is a good practice not to let your credit card debt exceed more than 20% of your total yearly income after taxes. And each month, don't have more than 10% of your monthly take-home pay in credit card payments.
- Have an emergency fund: Keep at least a 15% cushion of available credit in case of emergency. Or better yet, keep an emergency savings fund of three to six months' living expenses in a liquid, interest-earning account. That way, if you lose your job or have a big unexpected expense, you don't have to borrow more than you're comfortable repaying.
- Pay what you owe: Always pay at least your minimum monthly payment. By paying more than the minimum – or better yet the full balance each month, this will reduce the finance charges you may incur. Be sure not to skip any payments.
Make timely payments
Timely payment is one of the best ways to establish yourself as a good credit risk to future lenders.
- Be organized. Put all your bills in one place so you don't lose them or forget about them. Keep a list of the bills you have due, and if it will make it easier for you to remember to pay them, make them due on the same day each month. (Contact your lender to see if you can change your payment due date.)
- Pay attention to the payment due dates. Mail your payment — or schedule an online payment through Bill Pay — at least a week before the due date.
- Sign up for automatic payments. Using automatic loan payments from your checking account is a simple, convenient way to regularly make your payments. Be sure to schedule them according to your pay schedule to ensure you have sufficient funds for the payment when it is drafted.
- Keep your contact information current. If you're moving, remember to fill out the change of address form on your statement or update it online to ensure that your statement goes to your new address.
Stay in touch with your creditors
Contact your lenders immediately if you fall behind on your payments. Most creditors are willing to set up alternative payment options, especially if you inform them right away of your situation.
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My Financial Guide
Fair Issacs Corporation. “Understanding Your FICO® Score.” Copyright 2000-2011.
FINRA Investor Education Foundation. “Get More Money Now: How to Have Better Credit and More Money for Things That Matter.” Copyright 2006 and 2008.
National Foundation for Credit Counseling. “Tips to put your financial house in order.” 2012.