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Credit: Use It Wisely (or Lose It)

Jan 19, 2008
What do you think of right away when credit is the topic of conversation? Logically, it would be credit cards and maximum limits. When thinking credit, there are two rules: discipline and control.

Experience shows that individuals don't manage their credit wisely. They also are not aware of what can happen when they abuse credit. One negative effect could be a bank refusing to extend a loan.

During a conversation with our banker the other day, he said that he was appalled to learn that those who were negligent with credit are top professionals like physicians, lawyers and successful entrepreneurs. These are the privileged few who obtain high credit limits, giving them carte blanche to use credit in whatever way they deem fit.

It is often said that it's the poor person who has better spending habits.

What can the smart people with excellent credit health teach us? What steps can they recommend so we use credit intelligently?

Having too many credit cards in your wallet. Is it so hard to say no each time a store clerk waves an application at you, inviting you to obtain a credit card? He or she will often say that it won't take too much time, and that you'll even receive a token of the store's appreciation. It's called grabbing a share of your wallet. Stores are aware that if you have their credit card, you'd most likely be unable to resist the temptation of buying on credit;

If you think skipping payments will get you off the hook, think again. You can't afford to miss those deadlines. One, it's wrong to skip deadlines, two, you could fall into the trap of missing too many payments. People like to wait for their next paycheck to make a payment. Note that when you don't pay the minimum balance on time, that oversight gets reported to the credit bureau.

Going beyond your credit limit whether it's your credit card or your bank line of credit. If you temper your spending, you will be able to set aside some cash for when you have an emergency. Think of credit as something that can tide you over, not as something to use when you need a "picker-upper."

Frequent requests for increasing credit limits - this habit is just as bad as the preceding one we discussed. It's a cause-and-effect phenomenon. People are maxed out, and when the shopping bug hits them again, they call their credit card company requesting an increase in their credit limit. There's nothing wrong with asking for an increase - provided you urgently need the funds and make more than the minimum payments required.

Absence of a budget - when people don't have a spending plan, they waste their most valuable resource: money. It is the very absence of a budget that drive people to get into debtand into trouble when they can't meet payments.

Using Credit Intelligently

Always remember to practice restraint with credit. Don't go into an "application spree" and apply for every credit there is. Don't compromise your financial health.

Steps you can take to build healthy credit:

One, keep and maintain a maximum of three credit cards and make timely payments

Second, don't seek additional credit if you can help it. Don't live a "celebrity-like" lifestyle.

Step # 3: Mind your credit report. Scrutinise it with a fine-tooth comb at least once a year.

Step # 4: Try to pay a bill that's due. Even if you can't make the minimum, pay a smaller amount - certainly a better way to avoid blemishing your credit report when you don't make a payment on due date.

Five, if you can pay for products and services with cash or debit card, do so; leave your credit cards at home

Step # 6: Control your spending. Act like a frugal person and don't fall for all those products promising to make your life more comfortable.
About the Author
Steven J. Talrechi has written about credit reporting and credit reporting practices for over 10 years. he's an expert in assisting people obtain a 2nd chance checking account and 2nd chance bank account when they have been declined by other banks.
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