Credit
Management

Credit Cards

Credit cards are convenient and beneficial, if a person uses them wisely. The following guidelines explain how to use credit cards and how not to, as you work at improving that very important score.

Credit Card Guidelines

  • Pay your credit card bill off in full every month. If you cannot do that, stop using it until you can. If that is not possible, cut it up! Paying interest on a credit card is for chumps; don't be a chump.
  • Set your credit card payment up as an automatic payment each month out of your online banking account. Get organized, and make sure this is done NOW. Your future self will thank you.
  • If you are not an organized person, stay away from credit cards. You cannot afford to miss a payment, be late for a payment, or go over your credit limit. You will pay through the nose for these mistakes.
  • Have one primary credit card you keep on you and one backup that you keep in a safe place elsewhere. Avoid all other credit cards. Two is all you need. Less is more when dealing with credit cards.
  • Avoid store credit cards even when they offer discounts. They pull you in with teasers and fleece you over long periods of time. There is a reason why they push these so hard. Just say NO.
  • Never use a credit card in an ATM machine. This will be identified as a cash advance, and the interest rate will be exorbitant (20% or more in many cases). The credit card company wins, and YOU lose!
  • Never use cash advance checks. The interest rate will be astronomical (same as above), and once again, the credit card company wins as YOU lose! Tear those checks up!
  • Read your benefits brochure carefully. There are many advantages to owning and using a credit card wisely. Learn about them, and use all of the benefits they provide. Take control of your credit.

Your Credit

Go to annualcreditreport.com to review your three credit reports (Experian, TransUnion, and Equifax). Federal law states you will be provided this opportunity one time per year at no cost. Be careful, and avoid the sites that try to get you to pay. Review your report for mistakes and outdated information. Any information older than seven years must be removed. The exception to this rule is Chapters 7, 11, and 12 bankruptcies, which must be removed after 10 years. Here are some guidelines.

Credit Scores

  • If you are below 600, you have a problem. If you get a loan, the interest rate will be high.
  • If you have a number between 600-720, you are doing okay, but nobody at the bank is going to jump up and down when they meet you.
  • If you are between 720 and 760, you will probably get a warm smile and handshake with your loan and a decent interest rate.
  • If you fall above 760, they will roll out the red carpet and provide you with caviar and champagne and the best interest rate.
  • If you are above 800, they will probably ask you for a loan!

Improving Your Credit Score

  • Start by tracking your three credit scores for FREE at creditkarma.com and credit.com.
  • Payment History: PAY YOUR BILLS ON TIME. This is not complicated. You either pay on time or you don’t. If you do, your credit score will go up. If you don’t, it will go down. Pay your bills on time!
  • Credit Utilization: The bank wants to see you with a nice cushion between what credit you have access to and how much you actually use. They would prefer you to use less than 30%. I would prefer you use less than 10%. Cut your utilization rate, and the score goes up!
  • Credit Card (how not to do it): Your credit limit is $10,000. On the day they check your balance, you owe $6,500. This means you are utilizing 65% of your available credit. It does not matter if you were making minimum payments on that credit card at the time or if you were going to pay it off in full. 65% is too high, and your credit score will be negatively affected.
  • Credit Card (how to do it): Your credit limit is $10,000, and the day they check your balance, you owe $2,000. Now, you are utilizing 20% of your credit limit, and your credit score goes up. Even better, request an increase of your credit limit to $20,000 and if you get it, now your utilization rate is 10%. That is what you want! Let’s take a look:

4 Different Credit Card Limits

Amount You Owe on Specific Day

Card Limits

Bad Idea

Good Idea

$10,000 (Visa)

$2,788

$1,688

$12,000 (MasterCard)

$8,450

$1,220

$3,000 (Store Card)

$1,800

$0

$2,500 (Store Card)

$2,200

$0

$27,500 (Total)

$15,238 (55%)

$2,908 (10.57%)

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  • Length of Credit History: Having a home loan for many years will help. Having the same credit card for 10 years will help. These issues are important, but not as important as the first two points.
  • Types of Credit Used: You will receive a plus for having multiple types of credit. Having a mortgage and a couple of credit cards will enhance your credit score just fine. Do not fall into the trap of getting more loans to increase your credit score. I wouldn't do it.
  • Recent Searches: If you apply for many different types of credit (personal loan, store credit card, car loan, etc.), it will affect your credit score in a negative way if those are hard checks. Be mindful of allowing others to do hard checks on your credit score.
  • Late payments; negative accounts; and collections, garnishments, bankruptcies, and liens: None of these are good. Make sure that what is on your report is absolutely correct, and if it is, get rid of it when they reach the seven- or 10-year thresholds. Do not count on the credit bureaus to do it for you. Take control of your credit. It is YOUR credit.

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Stuff the lawyer wants me to say: Investing outside a bank or a credit union is not FDIC insured. You may lose the value in the investments you select. All information provided here is for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, or other products named. Translated: I am not selling anything! Educate yourself, research the information that you learned and finally make the right decisions that will benefit you and your family going forward.

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