For most people, debt is a financial tool used to achieve lifestyle goals such as buying a home or a new car. This makes it important to establish and maintain good credit. Understanding how credit works and how to effectively use it are essential if you want to avoid the many pit falls associated with poor credit.
It is imperative to have a positive credit history especially if you are in the market for a new home or some other large purchase. The first step is learning how to use credit cards intelligently. Poor credit card management is usually how people get into trouble with their credit score. To stay on the right path, do not charge more than you are able to pay off in a month or two. Your credit card is not a bank account. It is also important to pay the credit card bill on time every month. Late payments will have an adverse effect on your credit report. Always pay more than the minimum payment required. Remember, interest is being charged and minimum payments are primarily interest which means precious little principal is being paid. Stretching payments over a long period of time is only beneficial to the credit card company. Avoid using credit cards for purchases that are better paid by cash such as eating out or buying a new pair of shoes. It is smarter to use credit mostly for the purchase of long term durable goods that you truly need. The key here is to live within your means.
Poor credit management can have serious consequences in many areas of your life. If judged to be a poor credit risk, you may be denied a mortgage or even rejected for an aprtment rental. A potential employer may dismiss a job application if the credit report reflects an inability to properly manage financial matters. Insurers often put individuals with poor credit into their high-risk categories which greatly increases the premiums charged. Poor choices made now can haunt you for many years to come.
Like most things in life, your credit requires maintenance. No system is perfect and mistakes can and will be made. Federal law entitles individuals to a free credit report each year. It is a good idea to take advantage of this and review the report on an annual basis for any possible mistakes. If there are questionable items you wish to dispute, simply write to the agency and request that they verify the information. This process normally takes about a month. If the agency is unable to verify the information then it must be deleted from the credit report. Remember, credit is an important financial tool that needs monitoring and care.