Introduction to Credit Management

Managing your credit is one of the most important things you can do. A well-managed credit portfolio will help you obtain better loan rates, lower interest rates, and reduce the fees associated with some types of credit cards. Credit that is poorly managed, or not managed at all, can lead to foreclosures, repossessions and bankruptcy.

Budget

According to the Purdue University, a budget is an itemized inventory of probable expenses and income for a period of time. Essentially, a personal budget is a road map to your money. With a budget in place, you will be able to allocate your income and keep track of your bills. To set up a basic budget, write down all of your monthly expenses, and then subtract each from your gross monthly income. Make adjustments if your expenses exceed your income.

Credit Cards

Credit cards are loans meant to be repaid in the short term. A creditor sets up a total credit limit for a customer. The customer can then spend up to that limit on their credit cards. A portion of the amount spent the previous month will be due the following month. This is the lowest amount the customer must pay to the creditor. However, if the entire balance is not paid in full each month the customer will accrue interest on the total.

Using Credit Wisely

The most important step in credit management is to use the credit available to you wisely. When obtaining new credit cards, only apply for what you need. Do not rack up several cards just for the sake of having them. Once you have credit cards, only use them when needed and do not buy unnecessary items, and pay at least the minimum payment due each month by the due date.

Credit Scores

A credit score is a three-digit numerical value given to you based on information in your credit report. There are five factors that determine your credit score: bill payment history, amount of credit available, the length of your credit report, the types of credit you have, and applications for credit you made. According to Experian, a 700 and above credit score is considered a good score.

Eliminating Debt

The best solution for eliminating debt is to prevent debt from occurring in the first place. You can do this by paying the total amount due on your credit cards each month, and not taking on any loans or credit cards that you cannot reasonably handle. If you do find yourself in debt, you can develop your own repayment plan by adjusting your budget or seeking the help of a qualified credit counselor.