Acquiring a Solid Credit Card Posse

By Ronnie Bickel

Every individual must develop a positive history with credit bureaus, for prospective landlords, employers, and auto lenders depend upon such agencies to provide them with accurate assessments of each individual they conduct business with.

The key is to stay ahead of the game before the game consumes you. This task isn’t easy, by any means, but acute awareness coupled with responsible actions can sway the power of credit to your side. Before you can begin to improve yourself, you must know where you stand. Therefore, it’s a good idea to obtain a hard copy of your credit report once per year, every year. You can visit www.AnnualCreditReport.com to obtain a free yearly credit report from one of the three major credit reporting agencies: Experian, Equifax, and TransUnion. Requesting a credit report once a year will not affect your credit score; however, repeated inquiries from outside sources (credit card companies) can have adverse effects on your credit score. A typical consumer with average credit maintains a credit score between 600 and 700.

The most popular and accessible way to improve your credit history is through the use of credit cards. You may have heard at some point or other the phrase, “The power of plastic,” and didn’t think much of it. But this phrase shouldn’t be taken lightly, for these little magnetic pieces of plastic most certainly wield a power worth commanding. Aside from the convenience of such companions, every major retailer or service rendered accepts credit cards as a form of payment. Therefore, credit cards can provide you with an invaluable, yet manageable, means of building a sound financial foundation. In fact, many credit agencies can attest to the statement, “You don’t build credit if you don’t use credit.” But before you go blazing down this plastic trail there are several pitfalls you should try to avoid.

It’s a good idea to start out with only a couple (2-3) credit card accounts. When opening such accounts, span them out over a period of time. This will increase the average “age” of your accounts, creating the impression that your credit is more established which will invariably raise your credit score.

Once you’ve established a credit line, use it sparingly. At all costs, avoid maxing out a credit card. Instead keep your balances below 30% of your allotted limit. Gerri Detweiler, author of The Ultimate Credit Handbook, notes that maxing out a credit card alerts current and potential creditors to the possibility that you are at the end of your financial means. Every credit agency assigns its clients a minimum payment amount. This amount, more than likely, will only cover the interest your debt accrues. Therefore, to avoid the expanse of an overwhelming debt it is important to pay at least 1.5-2 times the minimum payment. In addition, when submitting a payment, it is crucial that you do so ON TIME. One late, or missed payment, can significantly impact your credit record in many negative manners. Besides implying that you are under financial stress, it can increase your interest rate, and it remains affixed to your credit record for seven years. One surefire way to avoid such difficulties is to arrange payments through the use of the Internet. Using this method, payments will automatically be subtracted from your bank account, or other monetary source you provide, on the same date of every month. Another aspect of credit you can explore is the possibility of a lower interest rate. Some people qualify for interest rate reductions; however, credit agencies aren’t going to advertise such possibilities. Instead, it’s up to you to find this information out. You may or may not qualify for such reductions, but you’ll never know unless you ask.

If you decide to call it quits in regards to your use of a particular credit card, don’t close the account. Paying off a balance and keeping the account open will indefinitely increase your credit score; however, paying off a balance and closing the account will only remain a part of your good credit history for ten years, and will eventually hurt your credit score.

In the event that you accumulate a debt that is beyond your financial means, don’t get discouraged, and above all, DO NOT file for bankruptcy. People often operate under the misconception that bankruptcy will wipe their slate clean. This couldn’t be more false, for bankruptcy can adversely affect many aspects of a person’s life. For starters, it remains affixed to your credit history report from 7-10 years. It can also impede your ability to acquire a job, for several employers shy away from potential employees whom have filed for the exemption because it gives off the impression of mismanagement, or an inability to manage important aspects of your life. Lenders other then credit card agencies, such as banks, also tend to steer clear of people whom have filed for bankruptcy. There are lenders that cater to such people; however, their fixed interest rates are set at an astronomically high level. Also, military personnel whom file for bankruptcy risk the loss of particular security clearances. It’s in your best interest to do everything possible to prevent yourself from falling victim to this less than attractive escape route.

Much to the surprise of many, credit cards typically carry more weight in the determination of your credit score than student loans, auto loans, or other unpaid bills. It’s important for you, as a consumer, to keep a close eye on them, and manage your credit wisely. Upon doing so, you can ensure the likelihood of potential lenders and employers wishing to conduct business with you. This will invariably increase your potential for financial survival.

© Doityourself.com 2006