Practice Healthy Credit Habits

 

Using credit responsibly can help boost your overall financial well-being. Here are some tips to establish a healthy credit reputation:

• Set up and follow a budget so you don't accidentally run up debt.
• Pay bills on time. Do not skip payments.
• Pay off credit cards in full each month. If you must carry a balance, keep it as low as possible.
• Do not apply for credit you do not need.
• Keep credit card and loan information in a safe secure place to reduce the risk of identity theft.
• Keep your receipts and compare charges when your billing statements arrive. Call your company immediately if there is a discrepancy.

 

Monitor Your Credit Report

 

Your credit report is a record of your payment history with creditors. It is this report that employers, lenders, landlords, insurers and other businesses often evaluate to make decisions about your creditworthiness.

It shows the following:

• How much credit you are using
• How well you pay your debts
• Who is inquiring about your credit
• Information on bankruptcies or federal income tax liens

You can request your free annual credit report through the Annual Credit Report Request Service, a centralized contact point created by the three nationwide consumer reporting agencies: Equifax, Experian and TransUnion. Review your credit report annually for accuracy and any changes that may indicate fraudulent activity.

Many members of the military now have access to free electronic credit monitoring which may alert you to mistakes or problems with a credit report stemming from unauthorized use. Click on the "Free Credit Monitoring" PDF below for more information.

 

Click to View PDF

 

In reviewing your credit score, if it is high enough, you may qualify for the best rate on a loan or credit card account. A low score may cause you to be denied credit. Depending on the credit scoring model, scores may range from 300 to 850. Most lenders consider scores above 660 to be a good credit risk, while scores below 600 may indicate credit problems.

No single factor determines your score. But one or more of the factors may affect the final score more than others, depending on the overall information in your credit report.

Your score today could be different from your score three months from now. Ordering a copy of your own credit report or credit score does not impact your score.

Lenders use different credit scoring models depending on the type of credit for which you are applying. Still, you can obtain an educational score from any number of sources (sometimes for a fee) to give you a directional snapshot.

 

Choosing a Credit Card

 

Credit cards get a lot of people into deep financial trouble. However, if you use them well, credit cards can also have a positive impact on your financial life. Here are some guidelines to keep in mind if you open a credit card account:

• Minimize Rates and Fees: Search for a card with no annual fee and low interest rates. Beware of low introductory rates that balloon after a time. Always check the rates of competing credit card companies. There may be a better option for you in the long run.
• Always Have a Plan: Even though it doesn't take much thought to simply reach for your card and pay for things, don't ever use your card without thinking first.
• Avoid Cash Advances: Most credit cards charge high interest on cash advances as soon as they post to your account. It's best to avoid using this feature.

Finally, don't use a credit card as a license to spend now and pay later. Credit cards should typically be used for convenience and safety. Avoid the temptation to spend money you don’t have.

 

Paying the Minimum Is Costly

 

Try to pay more than the minimum. In the following illustration, paying the minimum each month will take approximately 22 years to pay off the balance. In fact, it will actually cost you more than twice the original charge. Increasing what you pay by as little as $10 or $20 each month will make a huge difference. Just by paying a little more each month, you can save thousands of dollars in interest costs and cut years off your repayment time. To understand credit even better, analyze the chart below.