Take Charge of Your Credit
Once you have established credit, it is a constant effort to keep your credit strong by paying your bills on time and avoiding too much debt. It's tempting to make large purchases or take advantage of cash advances you can't really afford. Keeping your debt at a reasonable level and making payments on time are the two best ways to build and maintain a strong credit history.
Keep track of your spending
Save your credit card receipts and know what you owe.
Make sure your credit card statement is accurate. Review your monthly statement when it arrives, check for any possible discrepancies, and be sure to report them immediately.
Do not exceed your credit line
You can find your credit line (also known as a credit limit) and your available credit on your statement or online.
- Your ¡°available credit¡± is how much credit you have left on your account ¡ª your ¡°credit line¡± minus your ¡°outstanding balance.¡± Be careful to keep your spending below this amount.
- If possible, keep at least a 15% cushion of available credit in your account in case of emergency.
Stick to a budget
A budget can help you keep your spending under control, decrease your debt, and build a strong credit history. Some good practices to follow are:
- Follow the ¡°20-10¡± rule:
- Limit your total debt to less than 20% of your total annual income.
- Each month, less than 10% of your net income should go towards paying off credit card bills. If you are paying more, it's time to reconsider your monthly spending.
- Watch large impulse purchases. These purchases are especially hard to pay off.
- Use cash advances for emergencies only. Cash advances are the most costly way to use credit since you will pay higher interest rates and fees for cash than for purchases.
Follow these tips to create a budget
Pay what you owe
Pay at least your ¡°total minimum due¡± each month to keep your account in good standing.
Try to pay more than your minimum payment each month to help reduce the total finance charges you will pay.
Don't skip any payments.
To maintain good credit, it's important to pay attention to the due dates of your credit card payments.
Pay your bills on time to avoid a late fee and possible credit damage.
Pay off your balance within the grace period
For most cards, you can avoid finance charges by paying off your total balance within an established grace period. It¡¯s kind of like an interest-free loan for up to thirty days: purchases paid off during the current billing period do not accrue interest.
Make more than the minimum payment
Can¡¯t pay off your total balance each month? Then at the very least, try to pay more than the minimum required. Otherwise, you¡¯ll end up paying more than the original purchase price (based on payback time and interest rate). Paying even $10 more can really save you a lot in finance charges and interest in the long run.
Keep in touch
If you change your name, address, or job, notify your lending institution immediately. You don¡¯t want to risk a late payment. Also contact your lender if you cannot make a payment on your account for any reason. They might be able to arrange special payment options that help you avoid credit problems.
Get your finances under control
If you find you cannot make payments, there are steps you can take to get your finances under control.
- Create a payment plan that will get you back on track. This plan should include whom and how much to pay each month. Then keep your word and pay these bills on time.
- Limit your credit card use until your finances are under control.
- Contact creditors and discuss payment schedules that you can afford. Creditors will want to work with you to find a payment solution.
- Use other available resources: For suggestions and tips, contact the National Foundation for Consumer Credit (NFCC) at www.nfcc.org.