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Don't Neglect Your Credit
When people talk about credit, we automatically think of plastic - credit cards - and spending limits on those cards. We have to respect and abide by our credit limits.
When people talk about credit, we automatically think of plastic - credit cards - and spending limits on those cards. We have to respect and abide by our credit limits.
Why did the bank not approve our application for a loan? Did we ever think that the reason could have something to do with how our credit behavior hasn’t exactly been a model of discipline and prudence?
“Sky’s the limit” is what some high income earners tend to think. When they engage in irresponsible spending, they tend to forget that they have a credit history to protect. Because they earn high salaries, they think there is no tomorrow and go beyond their credit limits or max out their credit cards.
Someone once said that it’s the low-income person who pays his bills on time.
What can the smart people with excellent credit health teach us? What steps can they recommend so we use credit intelligently?
Having too many credit cards in your wallet. Is it so hard to say no each time a store clerk waves an application at you, inviting you to obtain a credit card? He or she will often say that it won’t take too much time, and that you’ll even receive a token of the store’s appreciation. It’s called grabbing a share of your wallet. Stores are aware that if you have their credit card, you’d most likely be unable to resist the temptation of buying on credit;
If you think skipping payments will get you off the hook, think again. You can’t afford to miss those deadlines. One, it’s wrong to skip deadlines, two, you could fall into the trap of missing too many payments. People like to wait for their next paycheck to make a payment. Note that when you don’t pay the minimum balance on time, that oversight gets reported to the credit bureau.
Maximum use of credit limits - this is also known as “maxing out” your credit card limit or your revolving line of credit. Instead of engaging in frivolous spending, why not leave room in your credit limit for a real emergency? The true meaning of credit has changed over the years; these days, people use credit to satisfy a whim or caprice, and not to cover urgent needs.
Frequent requests for increasing credit limits - this habit is just as bad as the preceding one we discussed. It’s a cause-and-effect phenomenon. People are maxed out, and when the shopping bug hits them again, they call their credit card company requesting an increase in their credit limit. There’s nothing wrong with asking for an increase - provided you urgently need the funds and make more than the minimum payments required.
Inability to stick to a budget. Without a budget, you throw out money out of the window, leaving you with no resources you can tap should you need. Don’t fall into the debt trap. Draw up a budget!
Manage Credit the Smart Way
Always remember to practice restraint with credit. Don’t go into an “application spree” and apply for every credit there is. Don’t compromise your financial health.
Here are some tips for managing credit the smart way:
Step # 1: reduce the number of credit cards to three at most. When it’s time to pay, pay them before deadline date.
Step # 2: stay away from any additional offers of credit. Spend money you have today prudently, don’t spend tomorrow’s money.
Step # 3: Mind your credit report. Scrutinise it with a fine-tooth comb at least once a year.
Fourth, instead of skipping a deadline payment, why not try to make some sort of payment, even if it’s under the minimum payment? This is a lot better than not making any payment.
Fifth, why not leave some cash in your wallet, and then pay for all your purchases with cash? This way, you can develop the habit of leaving your credit cards under lock and key at home.
Sixth: discipline, discipline, discipline! This is of paramount importance. Forget what’s in the stores.