Just like your report card keeps track of your academic performance and your grades, similarly personal credit is a comprehensive summary of all your financial information that builds up your credit score. Having a good credit score has its own advantages and is a major parameter on which lenders assess the risk of lending you money.
- You enjoy lower interest rates on mortgages, credit cards, car loans, student loans
- Allows you to have an increased credit limit on your credit accounts.
- Establishes a good image of your financial position in front of creditors.
Manage your credit
Managing your credit in a way that it goes in your favor and does not sabotage your long-term financial goals is your own responsibility. This requires consistent efforts as your credit score is a tool of reflecting on your past records and your willingness and ability to pay in the future. An interest rate that’s higher by even 2-3% can build up to a handsome amount at the end of the day or a 20-year mortgage. The same money could have been channeled to more productive areas like education or saving for retirement.
Note down as you spend
It is really important to keep track of all the transactions that you have made via credit cards, ATM card usage and the number of checks that you have written off. If you lose track of your spending you are sure to get into trouble later on.
Prepare for emergencies
Have emergency reserves of money in liquid state so that you can utilize it in terms of dire needs such as losing your job unexpectedly or health costs for example. Borrowing money more than you are comfortable repaying is certainly not a wise option.
Don’t keep unnecessary liabilities
Make it a habit to pay the bare minimum monthly payment that you owe to your creditors. And if possible consider paying the entire amount every month to reduce the financial charges that may be incurred. Skipping payments is a complete no-no.
Review your credit reports timely
You might not be aware of the credit reporting errors that can have damaging effects on your credit score. Your efforts to build up a good credit score can go down the drain if the credit bureaus have mixed up your contact information with other non-credible clients or if you have fallen victim to a fraud. For this purpose you should make it a habit to timely review your credit report every year and make sure to report any discrepancies or misquotation of financial information. Make sure there are no incorrect entries in your name of late payments or any kind of default and the amounts that you owe to each account is quoted correctly. You have the right to raise concerns and objections on your report so review and assess them monthly.
Pay on time
Nothing works more in your favor than timely paying your bills and clearing your dues. On-time payments are like your life saver. Payment history ultimately makes a big chunk of your credit score and you wouldn’t have to negatively affect your score just because of culpable negligence and carelessness on your part. Embrace technology and leave no stone unturned in being punctual in your payments. You can schedule your payments by putting them on auto or even setting text reminders on your cellphone to make sure you don’t leave anything on chance and you have the cash on hand a few days before the payment.
You should keep in mind that once your credit score is tarnished, repairing it is like losing weight because it a time-consuming process and there is no quick-fix for it as some credit boosting companies claim. Manage your score with utmost responsibility overtime and don’t let things to slip away out of your control, before it’s too late to get things back on track. Being aware and responsible of your personal finances is the first step towards financial stability.