The Best Practices for Credit Management

Good credit management is the cornerstone of personal finance. The two largest expenditures in a typical household are mortgage payments and auto loan payments. Student loans, personal loans, credit cards and other revolving accounts are also common personal finance tools. Managing credit properly can reduce the amount of interest payments by hundreds of thousands of dollars over a lifetime. The earlier you can start building your credit, the more money you can save in the long run.

Credit Monitoring

Monitor your credit rating regularly to build strong habits and prevent accidental damage to your profile. Subscribe to get your credit rating from any of the three major bureaus: Transunion, Equifax and Experian. Late payments and other issues on your report can harm your rating, bringing higher interest rates and even getting you turned down for loans in the future. Stay on top of your rating so you can correct mistakes and repay owed money to ensure a strong rating.

Avoiding High-Interest Revolving Debt

High-interest revolving debt--most often incurred through credit cards--can have devastating effects on personal finances. Credit card debt often reaches the mid-teens or higher in terms of interest rates. As a general rule it's sensible to pay off such loans in full every month. Avoid making expenditures that you won't be able to pay off immediately. Paying interest on such loans results in essentially making everything in your life more expensive. It also makes it nearly impossible to profit from savings and investments, decreasing future opportunities.

Faster Debt Repayment

Quickly paying down mortgages, auto loans and student loans is a fantastic way to save money on interest. Every dollar you spend in principle reduces the amount of interest you need to pay. Also, the more you pay down existing loans, the better it is for your credit rating. If you're interested in growing your credit rating quickly, pay off loans early.

Reduce Nonessential Expenditures

Reduce your nonessential expenditures to make your income go farther. To increase your standard of living, you need to earn more income, which increases your tax burden. If you reduce your expenditures, you have more money to save for the future without affecting how much you need to pay in taxes. Avoid eating out or purchasing prepared meals. Try not to buy new gadgets on a constant basis. Choose durable clothing that will remain fashionable for the foreseeable future. The fewer extravagances you purchase in the early years, the better your quality of life will be in the future.