You want the credit card companies to refer to you as a
'deadbeat' or a 'freeloader'. That may not sound like a
good thing; but it is. That is how banking industry
insiders refer to people that do not carry credit debt and
pay off their credit card balance in full each month.
To know why these financially savvy customers are referred
to as 'deadbeats', lets look at it from the credit card
company's point of view. Credit card companies want
customers that are 'revolvers'. Revolvers are customers
that carry college debt and credit card debt; that's how
they make their money. Their ideal customer is one that
make the minimum payments. These people will have carry
credit card debt for a long time. Depending on the
interest rate, if you make just the minimum payments, it
could take you more than 15 years to pay credit card debt
off.
Credit card companies also like customers that frequently
make late payment and go over their limit. Just by paying
late, credit card companies can jack up your interest rates
and charge you additional fees. Going over the limit can
have the same consequences. The credit card companies may
force you to pay the balance below the limit or you risk
having these fees add up month after month.
So strive to be a 'deadbeat' and 'freeloader'. Be the
credit card company's worst customer! This is the first
step to long term financial success planning.
Use credit cards to build your credit score. Before you
empty your wallet or purse and destroy your credit cards,
it is important to understand the benefits of having open
revolving credit. Of course credit cards make it easy to
reserve a hotel room, rent a car and are a convent way to
pay. It's important to understand that they do a lot more.
Credit cards are an important tool in your financial
toolbox.
Credit cards offer you an effective way to raise your
credit scores. Most already know that by having good
credit scores it will help you qualify for loans easier.
What's more you could receive lower rates and lower closing
cost. A side benefit of higher credit scores is that it
will help you avoid the embarrassment of being denied for a
loan.
The reason credit cards can help boost your credit score is
due to how credit bureaus evaluate you. Credit bureaus
grade customers based on their ability to repay loans
(debt). So if you never established or maintain credit
transactions, your credit scores will be lower. So if you
always pay cash and don't have any loans you will have poor
credit.
An easy way to understand this is by looking at how
teachers grade you in school. If you have never taken a
quiz, test or completed and assignment then how can the
teacher grade you? It's the exact same thing with the
credit bureaus. It's your responsibility to prove to the
credit bureaus that you have the ability to repay debt. So
by using your credit card and paying it off in full each
month you are rewarded with a higher credit rating.
To use credit cards to raise your credit score there are
some simple steps you can take. First, once you have a
working budget and money saved, build up $25,000 to $45,000
worth of available revolving credit. Then use your credit
each month and pay them off in full. Make sure not to
carry any balance over otherwise you will have to pay
interest on the amount you owe. By paying it off in full
before the next month you will not have to pay interest
charges to the credit card companies.
Before starting to build your credit scores it is important
you take the necessary safety precautions. Make sure you
are financially secure before starting to use credit cards
to build your credit score. Before you get your first
credit card make sure you have:
1) Six month of bills saved. You should have an emergency
fund that is equal to six months worth of your monthly
bills. Set this money aside in your savings account. To
illustrate, if you have bills of $1500 a month you should
have $9000 in your savings account. That way in case
anything unexpected occurs you will avoid the credit card
debt plague.
2) A working budget. An easy test to see if your budget is
working is if you're able to save money each month. In
other words, check to make sure that you bring home more
money than you spend.
3) Automated bill payment method. Set up an online
automatic bill payment for all your bills that are reported
to the credit bureaus. By having an automated system in
place you won't have to worry about forgetting a bill. It
can happen easy and one late pay will haunt you for 7 years.
4) You are in control of your spending. If you're the type
that will spend money if you have it, you probably should
consider waiting to get a credit card. Work on improving
your spending habits and make sure your in control before
getting a credit card.
5) Protect your identity. Make sure to destroy all
financial statements. Shred all sensitive documents before
throwing it away in the trash. There are plenty of
dumpster diver that would love to get a hold of your
personal information. Also be careful when submitting
personal information online.
Those 5 steps will help you to become a great 'deadbeat'.
A 'deadbeat' with a great credit score!
----------------------------------------------------
Vince Shorb, author of 'Financially Free by 30', has
personally reviewed the credit reports of over 10,000
people. Get more real world, practical credit advice and
free training videos at http://www.FreeBy30.com .
No comments:
Post a Comment