Practicing good credit behavior improves credit and prevents financial hardshipsSherene Costanzocredit behavior, credit score, credit reporting
Practicing good credit behavior is extremely important for
consumers who strive for excellent credit and a healthy financial
situation. Here are a few tips for you and your clients to consider
that will improve their financial situation or keep them on track
and prevent financial messes:
Make sure to create and live by a reasonable
budget
Whether your financial situation is good or bad, following a budget
is the key to a healthy financial situation. No matter what your
income, everyone must live within his means. Following a budget is
a necessary tool to help prevent a disaster or snowball effect of
growing debt. It is important to keep track of every dollar you
spend so that there is plenty of money to pay bills that come due
and cut out any unnecessary spending.
Always check your credit reports
Check your credit reports at least once a year, if not more. Errors
do occur and can affect your credit score drastically if not
corrected. If you don't check your credit frequently, you may not
realize that there is a problem with your score until you try to
make a major purchase. By this point, it may be too late to correct
the problem before you make your purchase. This can cost you
thousands of dollars in interest in the long run. To protect your
credit, you also need to check for any fraudulent activity.
Although it is fraudulent activity, it can take several months or
years to correct. So be sure to frequently check your reports for
accuracy.
Pay your credit card bills before or on the due
date
Paying credit card bills after the due dates can cost you a lot of
money. Not only do they hit you with $39 late fees, but they can
hike up your interest rates as well. Worse off, if you are past 30
days late, the creditor will usually report to all three of the
credit bureaus, which will drop your credit score. It doesn't stop
there - your other creditors may now increase your interest rates
as well. One late payment can rack up a lot of unnecessary debt.
Accidents or unforeseen circumstances can happen, of course; in
such cases, call your creditor and ask them to change your due
date, defer a payment or to remove the one-time late report and all
associated fees as a courtesy.
Pay more than the minimum payments due if
possible
When you pay just the minimum payment due on a credit card, you
will never be able to pay off the debt. In order to see your debts
decrease, you will have to pay more than the minimum payment due
each month. This will also save you a whole lot of money in
interest. Of course, you should be sure to have enough money each
month to make the minimum payment on all of your credit cards
before sending extra money to any of the credit cards. This way,
you will be sure not to miss any of the minimum payments due.
Prioritize your bills
Always pay your living expenses first so that you can survive.
Bills should be prioritized as follows:
1. Home mortgage or rent
2. Utilities
3. Groceries
4. Medical care (immediate care only, not medical
collections)
5. Car payment
6. Secured debts or loans (equity lines)
7. Unsecured debts or loans (credit cards)
and 8. Collections accounts, school loans and medical bills
Stay away from department store credit
cards
Department store credit cards just create more bills. Even though
they may offer a savings if you apply, it is not worth it in the
long haul. Department store cards usually come with high interest
rates and just create more bills and more due dates. Save yourself
the hassle and just use one or two major credit cards with the
lowest interest rate you can get. If you do have more credit card
accounts open, leave them open, just don't use them. The old cards
with available credit lines create credit history and usually keep
your credit score higher.
Be careful of tricky credit card offers with low rates
on balance transfers
Many of these balance transfers charge you a fee. They also usually
expire within six months to a year. You must pay the balance in
full before expiration or they will back-charge you all of the
interest. You also cannot be late, or your special interest rate
will increase drastically. Also, many times those special rates do
not apply to purchases. You will be charged high interest on your
purchases and your monthly payments pay off the lower rate balance
transfer first. It is best not to make purchases on these types of
credit cards. If used properly, these special offers can save you
money; however, they can be misleading and cost you a lot of money
if you don't read and understand the fine print.
If your client is already in a financial mess and has poor
credit, you may refer them to a credit restoration company to help
them toward their goal of improving their credit rating. Working
with a reputable credit restoration company can save a consumer
thousands of dollars in the future, as well as help you close their
loan. Don't turn away your clients with poor credit - help them
improve their credit and close extra loans!
Sherene Costanzo is vice president of Credit Consultants Inc.
She may be reached at (888) 522-7007 or e-mail
[email protected].
