Seven proven tips for using credit wisely! Don't have consumer debts? If so, congratulations are in order! You're among the prudent and lucky few.
A recent write-up from The Federal Reserve Bank of New York's Center for Microeconomic Data revealed that the aggregate U.S. consumer debt hit an all-time of $14.3 trillion in the first quarter of 2020 and continues rising, with household debts making up a significant percentage of that total.
But despite the increase in consumer debts, underlying data suggests that Americans are managing their credit – for now!
As credit cards, student loans, and personal loan balances continue to grow, there are fears that many people may soon feel overstretched and unable to keep up with their bills and credit obligations – if they're not already.
There are many situations where borrowing money makes sense, so it's worth learning the tips for using credit wisely when taking on any debt. There's a significant difference between "bad debts" and "good debt," and it all comes down to how you manage your credit.
Are you new to credit? Or perhaps your FICO score doesn't measure up? Or maybe you want to make sure your "excellent" FICO score stays that way? Whichever the case, a line of credit is essential to consumers if used wisely. Good credit will pave the way for your dream home, car, and even that job you've been eyeing for some time.
However, if not handled responsibly, it will quickly spiral out of control leading to financial problems ranging from foreclosure to bankruptcy, all of which leave your FICO score in a sorry state.
Your FICO and VantageScore credit rating may seem like a distant and abstract number that doesn't play any significant role in your life, that is until you get stuck or outright get denied when you apply for a mortgage or auto loan.
Having horrible credit can be frustrating and expensive. Learning to manage your credit wisely offers numerous benefits for your financial health, both now and in the future.
Some of the tips for using credit wisely include:
The good news is even those with less-than-desirable credit right now can start to use credit wisely and raise their FICO score over time.
We've all at some point experienced that "oops" moment or two where we made some terrible financial decisions and burned our credit. And that's precisely why it's time to take a step back and remember to protect yourself and use credit wisely.
You'll want to establish a solid credit reputation, an exceptional FICO score and make responsible financial decisions.
For this reason, implementing the following tested and proven tips for using credit wisely could be a game-changer for your overall credit and FICO score:
1. Use Up Very Little Of Your Available Credit Limit
It can be exciting to notice that you have a high credit limit. However, you might want to curb your enthusiasm here and use only a tiny percentage of your available credit limit.
Maxing out your credit limits can not only hurt your credit rating but your financial health as well. Keep your credit below 30% of your limit at any time on your credit accounts.
A higher ratio-percentage means you're living on too much credit, and you're likely to face financial difficulties soon. The lower your credit utilization ratio, the easier it will be to stay on top of all your payments, and the easier it will be to maintain good credit and raise your FICO score.
2. Create And Stick To A Realistic Budget
The secret to using credit wisely is creating and sticking to a realistic budget. Use your income as the starting point and work your way to expenses, including debts.
Again, make sure your budget is practical; it will help you map how much is left for expenditures and calculate how much debt you can take without facing repayment issues.
3. Don't Be Afraid To Use Your Credit
While living without debt is a fantastic way of life, keeping your balance on credit cards and other loans at $0 isn't doing much for your credit or FICO score.
Using credit wisely calls for using credit, so you must use your credit. Keeping your credit active will prevent the lenders from closing the credit line on you.
4. Pay Bills And Debts On Time
Whether utility bills or credit card bills. Your payments and repayments form the backbone of your overall credit and FICO score.
So pay your bills and outstanding credit balances on time, every time, and in full. Not only will you avoid accumulating too much debt, but you might also never have to pay interest.
5. Constantly Review & Monitor Your Credit Reports
While continually making multiple credit applications – hard inquiries – hurts your credit, requesting a credit report directly from the credit reporting agency is considered a soft inquiry, and your credit only takes a minor hit.
Use this opportunity to watch your three credit reports from the major credit reporting bureaus, TransUnion, Experian, and Equifax. **PRO** - Tips for using credit wisely consider using real-time credit score monitoring and order a free annual credit report. These services will allow you to stay in the know regarding potentially credit-damaging and costly errors.
Continually reviewing and monitoring your credit reports ensures that your FICO score reflects your credit and financial behavior correctly.
6. Leverage The Benefits Of Technology & Tools To Avoid Credit Pitfalls
No one plans to use their credit recklessly; things happen, unexpected circumstances arise, and before you know it, your credit is in ruins. Another fantastic tip for using credit wisely is to take advantage of tech and tools to help you avoid credit mistakes.
These can include bill payment options via your phone, statement, credit report alerts by email or phone, etc. Today's tech puts you in an excellent position to use credit wisely, so make sure you use it to your advantage.
7. Don't Take On Debt You Can't Afford To Repay And Make Sure You Read The Fine Print
Are you having trouble managing your credit? If so, maybe it's time you considered cutting back on borrowing. Also, if you're deep in debt, seriously reconsider your options before taking on more debt.
Remember, you can't resolve debt by taking more of it. You're better off cutting your losses before existing debt snowballs out of control.
A simple way to figure out if you're taking on too much debt is to calculate your debt-to-income ratio, and anything over 43 percent is problematic and a clear sign you should steer clear of new debts at all costs.
Shop around when choosing a lender and choose wisely. Always read the fine print – terms, and conditions – before you borrow money. Take your sweet time to understand your options, ask questions, and read the fine print of any agreement.
Final tips for using credit wisely: If you still have questions, ask a professional credit repair specialist or reach out to the Consumer Financial Protection Bureau.
Do you have other secret tips for using credit wisely? Feel free to share.