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How To Tell The Elements Of A Good Credit Policy

Updated on November 12, 2010

Now that you have begun to work on your credit record, finding out the elements of a good credit policy should be at the top of your list.

You've started to get your debts in order, and now you can consider what you can proactively do to purposefully create a good credit history for yourself while at the same time raise your credit score.

Please understand that just as it took time to build up debt and poor credit, it will take time to create a credit record that will benefit you.

Even if you have fairly decent credit, it is important to learn how to protect and maintain it.

The first thing to do when you are looking into a credit policy is take some time to understand the credit terms.

Here are some basic terms you will want to be familiar with when you are working on rebuilding your credit.

1.  Finance Charges.  There are 2 types of finance charges:

·    The first type is APR (annual percentage rate), which is the amount of interest you will pay each year on your balance. 

·    The second type is MPR (monthly periodic rate), which is simply the APR divided by 12 months.

To gain a better understanding of how much you are paying in interest, multiply the amount of your monthly payment by the number of months you will pay on the loan. 

This shows the total amount you will pay. 

Subtract the amount you borrowed from this number, and it will show you how much you will be paying in interest alone over the life of the loan.

2.  Annual Fees.  You may not be aware of this, but some credit cards charge you a yearly fee just to use the card. 

The fee appears on your statement once per year and can range from $30 and up.  Many companies will alive this fee if you ask.  And, there are many cards that do not charge this type of fee, so shop around for the best credit policy.

3.  Grace Period.  Some credit cards offer a grace period.  This is the time between when the billing cycle closes and the date you have to pay the loan to avoid any finance charges or late fees.

4.  Additional Fees.  There are a myriad of fees you can encounter with credit cards.  There are late payment fees, cash advance fees, fees for checks that bounce, fees for exceeding your credit limit, etc., etc. 

One type of fee to avoid is a transaction fee.  If your card has a transaction fee you will be charged a small amount each time you use the card.  These fess can really add up, so avoid it whenever possible.

The bottom line here is understanding the elements of a good credit policy (fees, grace period, annual fees, and finance charges) are essential to getting the best credit terms that will fit your individual needs.

Improve your credit by understanding the terms of the policy before you agree to it.  There's just no other way to get around this.

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