Credit Management Strategies

Knowing how to manage your credit can ward off a host of financial problems, such as maxed out credit accounts and a low credit score. Sadly, some people don't recognize the difference between good and bad credit habits. They may use credit cards frivolously to satisfy their every desire. Unfortunately, this type of behavior often leads to money and credit problems. But there are strategies to help you manage credit better, and improve your FICO score.

Manage Your Accounts Online

According to the Federal Reserve, submitting payments on time is key to maintaining a good credit rating. Several credit card companies and other lenders offer online account management through which you're able to check your balances online and pay your bills online. This feature is useful because creditors normally credit online payments the same business day. This alleviates late payments; and once you've developed a history of making on-time payments, your FICO score will improve. On the other hand, it can take up to seven days for mailed payments to reach your creditor. And if you don't plan well, payments could arrive late.

Pay More Than the Minimum

Some people get into a habit of only paying their minimum payment. However, if you owe several thousands of dollars on a credit card, it can take several years to pay off the balance. Stop paying the minimum and aim to triple or double your minimum payments. Often, minimum payments only reduce the interest charge, and the principal doesn't decrease. By paying more than the minimum, your credit card balances will gradually decrease, and you'll eventually pay off the card(s).
According to the Federal Trade Commission, creating a budget is key to dealing with debt and personal finances. Subtract your monthly expenses (housing, transportation, bills and food) from your take-home income. Cut back on miscellaneous spending such as shopping and dining out and use the extra money to pay off your balances. It's a sacrifice, and depending on your balance, it can take a while to pay down debt.

Keep Your Balances Low

As a rule, it's ideal for credit card users to "charge only what they can afford to pay off within a month." Sticking to this rule helps you maintain low balances and avoid maxing out your credit cards. There's nothing wrong with using credit cards. Besides, this is how you build a solid credit history. The problem lies with the accumulation of debt (that is, paying for everything with credit and keeping the balance for several months or years). A high debt-to-income ratio damages your rating and you may not qualify for financing. To maintain a good score, keep balances at less than 50 percent of your limit and aim to pay off new charges within a month.

References

• Federal Reserve - Managing Credit Better
• FTC - Knee Deep In Debt

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