Finance Blog

Tips on Using Your Credit

Credit Cards, Personal Finance

Many people do not realize the importance of a good credit rating. Having a good credit rate can make the difference of your being able to purchase your own home. If you have a bad credit rating, you can be declined when you put in your application for a home mortgage. Here are a few tips on using credit wisely:

Having a credit card is not necessarily a bad thing. But you do need to use is wisely. There are many times when having a credit card comes in handy—and no, when you want to buy that ‘must-have’ item is not the time. Today many hotels, airlines and car rental companies prefer to take credit cards. Also sometimes emergencies crop up where you need to use a credit card (perhaps when your car breaks down and you need it for the towing company.) Those are the times you should reserve for your credit card usage.

You need to distinguish between your ‘wants’ and your ‘needs’. Only purchase items on your ‘wants’ list when you have enough money saved to pay cash for the item. Do not buy things you cannot afford, or you may abuse your credit rating when you cannot make the payments on it.

If someone asks you to co-sign a loan for them, stop and think twice. If it so happens that the original party defaults on the loan, you are the one left to make the payments. Ask yourself if the person asking you to co-sign is trustworthy and reliable, and also consider if you would be able to make the payments if necessary. If you fail to live up to your end of a co-signed loan, this can hurt your credit rating as much as it does the original person. Another thing to consider is that co-signing a loan can count against your debt ratio which could affect you being able to get a loan you may need for something else yourself.

Do not accept every credit card that is offered to you. The least amount of credit cards you have is better. Not only will you be tempted to use all the cards you have in your wallet, but this again could affect your debt ratio which could hurt your chances for another loan approval.

Also watch the limits on the credit cards you do have. When the credit card companies advice you that they are raising the limits for what you can charge on your credit cards, simply contact them and refuse the increase. The higher limits can again affect your debt ratio.

It is important that you contact the lending companies you use if you have a change in status—a divorce for example. You, as a person listed on any loans you have separately or jointly, are responsible for the debt. If the other party defaults on their payment portion (even if you pay your part), the bad rating still affects your credit if you do not advice the lender accordingly.