Take Charge of Your Credit

Saturday, September 12, 2009

As you probably already know, your credit score plays a very important role in your life, and it is crucial that you know how to maintain a great credit score. In Essence Magazine's September 2009 issue, I found an excellent article entitled "Take Charge of Your Credit!" by A.M. Rusin. It encourages readers to protect their credit scores by 1) opening all mail, 2) making timely payments, 3) staying out of the credit danger zone, 4) reassessing credit, and 5) getting a fixed rate on credit cards. Among all these tips, it is important to highlight #3: staying out of the credit danger zone. Be aware that "issuers are looking for red flags indicating a consumer is in trouble ... Late payments, high balances and cash advances could be a sign of cash flow problems and prompt a change in terms. If issuers sense you're at risk, they may assess a monthly fee, lower your credit line, or raise your APR," says Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (nfcc.org) (cited in "Take Charge of Your Credit").

We may live in a "spending is cool" culture, but I very much encourage you to think twice before purchasing something on your credit card if you don't believe you can really afford it. My personal motto with credit is: if I can't realistically pay off my credit card this month if I purchase this item, I can't afford the item right now. The motto may sound a bit restrictive, but it definitely helps to maintain a good credit line and reduces the opportunity to rack up a exorbitant amount of credit card debt. In Essence's "Take Charge of Your Credit" article, it provides 4 ways to protect your credit score:
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Payment History. "Grace periods are shrinking," states Gail Cunningham, spokesperson for the National Foundation for Credit Counseling. "Open your statements the day they arrive."
Amounts Owned. "Don't carry a balance that is more than 30 percent of your available credit because having higher ratios can begin to negatively affect your score," says Bruce Cornelius, chief marketing officer for CreditReport.com.
Length of Credit. "Don't get angry and close an account," warns Cunningham. Your credit history is calculated as an average, so a one-month-old account averaged against a ten-year account will shorten the history and lower the score.
Types of Credit Used. Be wary of 0 percent interest or no-money-down offers. If you do use credit for a large purchase, know that installment terms have a more positive impact because the terms are fixed.
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For those of you that are trying to increase your credit score, don't fret. I very much encourage you to check out the Suze Orman Show or go to the library or bookstore and check out her books. She offers sound and excellent financial advice, and is very clear and concise with her commentary. I would also suggest ordering a copy of your credit report (you can get it for free at annualcreditreport.com once a year).