Effective Credit Management

Having credit can sound like a financial pitfall to some consumers. But with effective credit management procedures, you can establish a positive credit history and put yourself in a position to qualify for that mortgage or car loan. Good credit management takes planning and determination, but the results can be worth the hard work.

Debt Ratio

One of the questions that consumers often ask is how much credit they should take on at any time. The Motley Fool financial website (see Resources) offers a way of calculating your debt ratio. For example, if you have $10,000 in debt and an annual income of $40,000, then divide your debt into your income to come up with a debt ratio of 25 percent. The Motley Fool website recommends having an income to debt ratio no higher than 15 percent in order to be able to manage your credit.

Budget

When you start taking on credit debt, you need to keep track of how much overall debt you are accumulating to avoid getting into a situation where your debt is overwhelming your monthly income. Develop a personal budget that lists all of your obligations against your income. Put at least 10 percent of your income into a savings account each month, and remember to account for your monthly expenses such as gas and food. Tracking your money each month in a budget will allow you to see how much cash you have available and prevent you from taking out more credit than you can afford.

Credit Reports

Stay informed on changes in the credit industry that can benefit you and strengthen your credit report. For example, as of 2011, the Experian credit bureau allows renters to have their good renting history be part of their credit report. This is an excellent way for you to enhance your credit score if you rent your home without having to take on the additional costs of another credit card. Monitor the news and the credit reporting bureau websites to find new ways of bolstering your credit report without taking on new credit.

Plan Your Spending

Having and using a credit card will help improve your credit as long as you make your monthly payments on time and do not spend to the maximum limit on each card. Only use 30 percent or less of the available limit on each credit account you have, and budget enough money each month to pay more than your monthly minimums. Paying your minimum payments on time and in full is good for your credit, but paying more than your minimums helps you reduce your interest debt and also boosts your credit score even more.