Review your credit
How to protect your good credit standing
Failure to repay the credit extended as agreed is where most people get in trouble.
- Late payments affect your credit history. It doesn’t matter that the credit card balance is only $5, or that the payment is only one day late, or that you pay the late fee. Failure to pay on time will put a black mark on your credit history, a black mark that will last for a year or more.
- Minimum payments are another trouble spot. While making the minimum payment — generally about 2% to 3% of the outstanding balance — is acceptable, it does very little to reduce your outstanding debt.
Say, for example, you buy a $2,500 computer using a credit card, and make the minimum payment of $50 per month. Assuming you don’t make any additional purchases with that credit card, how long do you think it will take you to pay for that computer? Would you believe EIGHT YEARS?! It’s true. By the time you’ve paid for the computer, you’ll probably be using it as a doorstop.
- Don’t assume you have a great credit history just because of the continuous offers for revolving credit you receive in the mail. Make sure that you have credit when you need it for a mortgage or a personal loan. You don’t want to be denied due to poor history or overextension of credit cards. What is more valuable — a house or a sweater? It’s up to you.
- Use credit effectively. Determine how much credit you can comfortably afford — 15% to 20% of your take-home pay is a good rule of thumb. Develop a household budget — a detailed list of your income and expenses. If you find that you cannot afford credit purchases, considering your current income and expenses, you should still concentrate on establishing good credit, but continue making most of your purchases using cash. Credit purchases should generally be limited to those that can be paid off at the end of the month. Larger purchases should be evaluated based on need, a usable life (remember the computer) and a payment schedule established to assure that the debt is paid off quickly.
