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How To Take Charge Of Your Credit

Updated on June 22, 2010
what's your credit score?
what's your credit score?

Credit Rating

A good credit rating will serve you for a lifetime. If you have a good credit rating, you will be able to borrow money anytime you need it. A poor credit rating on the other hand, can keep you from getting the car or house that you want. You may also have to pay higher insurance rates, and you could even be turned down for a job. You should borrow money only when it is really necessary. If you do decide to borrow, make all of your payments, and make them on time . This is especially important for managing credit cards and student loans .

credit cards may seem convenient
credit cards may seem convenient

Use Credit Cards With Caution

A credit card may be compact and seem convenient. The piece of plastic may seem to promise you piece of mind. Low on cash?, just whip out your credit card and relax. Your worries are over - until you get the bill.

Credit cards often come with a high interest rate, sometimes as high as 20%. Imagine working five days a week, and only getting paid for four: You would loose 1/5 of your income. Likewise, when you rely on high-interest credit cards to get by from month to month, you can loose 1/5 of your monthly payments to interest charges.

In a 2000 survey, conducted by Nellie Mae (a student loan corporation), 78% of undergraduate students had credit cards. Their average credit card debt was almost $3,000. If a student with this debt used a credit card with an annual percentage rate of 18%, and only paid the minimum payment every month, he would be making payments for 15 years and would pay an additional $2,748 in interest fees.

Credit cards do have some benefits. If you have one, you don't have to worry about carrying a checkbook everywhere you go, or large amounts of cash. They are also pretty handy in emergencies. Another benefit is that getting a credit card is an easy way to establish a credit record. Also, some cards offer rewards, such as frequent flyer miles and discounts on car rentals. On the other hand, if used unwisely, credit cards can leave you with a debt that takes decades to repay. This can seriously delay other goals - paying off student loans, financing a car, buying a car, and saving for retirement.

Use the following strategies to take control of your credit cards...

Scrutinize Credit Card Offers

Beware of cards offering low interest rates. These rates are often temporary. After a few months, they usually double or triple! Also look out for annual fees, late fees, and other charges that are usually in the fine print.

Be most wary of credit card offers made for students. Be in mind that the companies who willingly give out cards on campus are not there to offer education. They are there to make money by charging you interest.

Try To Avoid Cash Advances

Because of their high rates and fees, credit cards aren't a good source for spare cash.  Even when you get cash advances on these cards, it is still borrowed money.  As an alternative, get a debit card tied to your checking account, and use that card when you need cash on the go.

credit card statement
credit card statement

Check Statements Against Your Own Records

File your credit card receipts every month.  When you get the bill, check it against your receipts to make sure it is accurate.  Mistakes are rare, but they do happen.  Also, checking your statement reveals the interest rate and fees that are being applied to your account.

Pay Off Your Balance Every Month

An unpaid balance is a sure sign you are spending more money than you have. To avoid this, keep track of how much you spend with your credit cards every month. Then save an equal amount of money. This way, you can pay off the card balance every month and avoid interest charges. If you follow this suggestion alone, you might transform your financial life.

If you do build up a large credit card balance, go to your bank and ask about ways you can get a loan with a lower interest rate. Use the loan to pay off your credit cards. Then promise yourself you won't accumulate credit card debt again.

use only ONE credit card
use only ONE credit card

Use Only One Credit Card

To make your financial life simpler and take charge of your credit, consider only using one credit card. Pick one with no annual fee and a low interest rate. Don't be swayed by credit cards that offer free T-shirts or coffee mugs. Think of the bottom line and be selective.

Get A Copy Of Your Credit Report

A credit report is a record of your payment history and other credit-related items. You are entitled to get a free copy of your credit report each year. You can request a copy online at https://www.annualcreditreport.com. This website was created by three nationwide credit-reporting companies - Equiifax, TransUnion, and Experian. Check your credit report carefully for errors and accounts that you didn't open. Do it NOW, before you are in trouble financially.

Manage Your Student Loans

You do not have to go broke in order to get an education. A college degree is one of the best investments you can make. You can make this investment at varying levels of debt. Try to keep yours as low as possible.

The number of college graduates with over $40,000 in student debt has increased tenfold since 1993. According to the Project on Student Debt (a nonprofit research group), this is more than most people can afford to pay in 10 years (the standard repayment period). Try to avoid this fate with the following strategies...

You don't want to fall into debt you can't afford to pay
You don't want to fall into debt you can't afford to pay

Choose Schools With Cost In Mind

If you decide to transfer to another school, you can save thousands of dollars the minute you sign your admission application. In addition to choosing schools on the basis of reputation, consider how much they cost and the financial aid that they offer.

Some students just resign themselves to high debt, "I'll go to the best school that accepts me, no matter how much it costs," they say. "I'll worry about the loans latter." This line of reasoning can leave you with loan payments that can lower your standard of living for decades.

The best way to manage debt is to avoid it altogether. If you do take out student loans, only borrow the amount you can't get from other sources - scholarships, grants, employment, gifts from relatives, and personal savings.

Shop Around For Student Loans

Look into loans with fixed interest rates that are guaranteed by the federal government. Stafford loans are available to students regardless of your income. If your parents are helping to pay for your education, you can apply for a PLUS loan.

Loans from private companies often have variable interest rates. These rates can vary widely depending on your credit rating.

Search for loans with features that make repayment easier. Avoid loans with prepayment penalties (extra charges for paying off the loan before the final due date). Remember that interest payments on some forms of debt, such as home equity loans, may be tax deductible.

Some lenders will forgive part of a student loan if you agree to work at a certain job for a few years, such as teaching in a public school in low-income neighborhoods, or working as a nurse in rural communities. Ask someone in the financial aid office if they know of such programs.

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