Understanding How Credit Works | Company
Credit is part of everyone’s financial life.
Whether it’s making a big purchase or just paying monthly bills, we all depend on credit. Using credit requires that we act responsibly. We see the government spending billions of dollars that it does not have.
Unfortunately too many citizens are doing the same. It puts a great deal of stress on people’s lives. In fact, financial problems are the number one cause of divorce in America.
A worrying trend is the growing indebtedness of the elderly as they approach retirement. Most people see a reduction in their income when they retire, and having to make mortgage payments or having large credit card debt can really have a negative impact on retirement. Seniors were throwing mortgages to burn parties to celebrate this great achievement. Too many people today have an “I want it, and I want it now” mentality. Unlike some people who think: âWhoever has the most toys doesn’t always winâ. There is a difference between a need and a desire.
When shopping on credit, there are steps you can take to keep your interest rate as low as possible. People with a higher credit score generally pay lower interest rates.
Credit scores are calculated using a different formula applied to your credit report. There are three major credit bureaus. Your history might be a little different in some of them, as not all creditors fall under all three. Sometimes there are mistakes that you can get corrected; However, you cannot remove real negative information to try and improve your score.
The main factor in credit scores is probably paying bills on time. Once you start posting more than 30 days late, it starts to become a problem. Credit scores also look at usage ratios. For example, if you have a $ 10,000 line of credit and you only use $ 2,000, your usage is 20%. People using 30% or less often have the highest credit scores. For this reason, you can achieve a higher score by not canceling a credit card that you no longer use. Other factors are how long you have had an account and the types. If your score is lower than you want, you can improve it over time.
Each year you are entitled to a free credit report from the three major credit unions. He is www.annualcreditreport.com. If you don’t need to apply for additional credit now, consider freezing your credit. This will prevent anyone from opening an account in your name. You can always unlock it later if you need to request it.
Make smart credit choices. If you have a high rate mortgage, the rates may never be this low in our lifetime. Try to pay off credit cards in full each month to avoid their high interest charges. If you do, you will not pay any interest on these purchases.
Don’t roll credit card purchases into a new mortgage unless you have the discipline to avoid accumulating balances again. Budget and save a set amount each month for things like vacations. This will make life less stressful and you can actually enjoy this vacation even more knowing that it is already paid for.
Your Financial Future is written by Certified Financial Planner Gary W. Boatman, MBA & CFP, who also wrote the book “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility”. If there is an area you would like to see discussed in the column, send your suggestions to [email protected]