People always remember their "firsts." Their first
kiss...first concert...first job...first thing they bought
with a credit card. Well okay, maybe I'm the only one who
remembers the first thing I charged to a credit card. It
was a bag of groceries (and I think I paid interest on my
Fruit Loops for six months).
As a whole, we are not that well educated on credit. And we
like to spend. In fact, the government said the personal
savings rate for the nation in 2005 was negative 0.5
percent. That means consumers not only spent what they
earned—they also spent money they didn't have.
Credit cards and loans have a lot to do with that spending
statistic. The thing is, most of us need credit, especially
when it comes to buying a car, a house, or even a new
wardrobe for that dream job. The key is educating yourself
and knowing how to manage your credit.
Whether you're 22 and just getting started or 42 and want
to clean up your credit, understanding the way things work
can be a big help.
Review your credit report As you accumulate credit card
accounts and apply for loans, you build a credit history.
This history is tracked on your credit report, and it
includes everything from the types of accounts you open to
the number of late payments you make. All your information
is broken down into six sections so it's easy to review.
Check for danger signs There are certain things on a credit
report that lenders just don't like to see—and this
could hurt your chances of being approved for loans; or you
could pay higher interest rates. For example, late payments
and maxed-out credit card accounts can damage your credit.
By getting rid of these types of danger signs, lenders will
see you as more credit worthy.
Consider loan consolidation If you have to pay back a
school loan or any other outstanding debt and the amount is
pretty hefty—usually around $10,000—you may
want to consider consolidation. The main advantages of loan
consolidation are being able to lock in on a fixed interest
rate and you'll have just one payment to make (that can
really cut down on paperwork).
There are, however, some drawbacks of consolidation. When
you consolidate during the loan grace period, you have to
begin repayment immediately and may lose possible interest
benefits on subsidized loans. And, if interest rates go
down, you will not be able to take advantage of the lower
rates.
Create a plan When you know what to do, it's a lot easier
to do it, right? By making an effort to improve your
credit, you'll slowly but surely get to where you want to
be.
Even doing something as simple as signing up for automatic
payment to avoid late payments may cause a positive change
in your credit. Or maybe the first step is creating a
spending plan, there's a handy worksheet that can help show
you how.
If you're just getting started, make a plan to build your
credit history. You'll see doing a little homework now can
save you money and headaches down the road.
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TransUnion's TrueCredit empowers consumers to manage their
credit health, providing information on credit-related
issues that range from the significance of a credit report
to identity theft protection. TrueCredit's offerings
include free monthly newsletters & online products,
including credit reports, credit and insurance scores,
credit monitoring, debt management tools and identity theft
insurance services. http://www.truecredit.com/
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