Understanding Credit and Debt
Credit and Debt: What You Don’t Know CAN Hurt You
Using credit wisely can lead to a positive financial future. Unfortunately, misusing credit cards or making late (or no!) payments can rapidly become a huge obstacle to your financial success.
Try following these tips:
Determine whether your purchase is really a NEED or a WANT.
- If you’re racking up credit card debt to meet your needs, there’s a problem with your budget.
When in doubt, wait it out.
Those impulse-buys of $20-$50 can add up quickly.
Is it *really* worth buying that eye-catching item right now? If you’re not sure, set it down.
Return to that store a day (or a week) later. Does that item have the same “pull” on your wallet?
Make a habit of paying your credit card balance in full each month.
If there’s a big purchase coming up, plan to allow enough time to save for it.
Carrying a balance month-to-month on credit card(s) means you are incurring fees and interest that make your purchases cost more over time. The longer you carry that balance, the more it costs.
If you do have an existing credit card balance, try this calculator to estimate your repayment time frame.
Pay on time—EVERY time.
- Don’t pay more than you have to by adding on late fees.
- If your credit card’s due date falls at a date that's financially lean for you, contact the card issuer to see if you can change the due date. Most creditors will work with you to set a due date that is feasible.
Choose cards that work for YOU.
- Many cards offer cash-back or points options for other purchases (like air miles or store credit). Find one that gives you benefits you will actually use, and then USE your benefits!
- If the card has an annual fee, make sure its benefits cover the cost of that fee. If not, look for one with no annual fee (or better benefits).
Know the terminology, so you will understand how to manage your credit accounts.
- Click here for a very helpful glossary from the Federal Reserve.
Know what is on your credit report.
There are three main credit bureaus: Equifax, Experian, and TransUnion.
Creditors may report to just one bureau, or two, or all three, so each bureau could have different information.
Your credit reports contain information about:
Check your credit reports once a year. (It’s free!)
Because other entities WILL be checking your credit reports! Lenders, banks, insurance agencies, and credit card companies may review your credit history to evaluate your credit risk.
- Potential employers may run a credit check before you can be hired- or even interviewed- for a job.
You can get a free credit report once a year. Review it to maintain accuracy of your information.
If you do find mistakes on your credit report, contact the agency or creditor immediately to resolve the issue. The longer an inaccurate or negative item sits on your history, the greater impact it can have on your financial standing.
The Federal Trade Commission has excellent tips on reviewing and building a better credit report.