5 Steps Involved in Credit Management

Credit management is a critical part of taking good care of your financial health. Good credit will garner you superior credit offers, and ensure you get the best deal. This in turn will reduce interest payments and save you money. To get this beneficial circle started, follow these five steps to keep your credit in order.

Minimize Credit Applications

Applying for credit negatively affects your credit score; don't ask for it unless you need it. Each time you put in a credit application, like a request for a new credit card or even an increased limit on a card already in your possession, your credit score goes down, whether or not the request is granted. Keep requests to a minimum.

Maintain Credit Record

Get a hold of your credit record. Review it and remove incorrect, derogatory items. For example, maybe you paid a bill that is showing as outstanding, or perhaps a credit card noted that a payment was late that was in fact received on time. You can challenge these cases, and the firm that reported the item will have to justify it.

Pay on Time

This is critical. You must pay your credit bills by the proper date. Not doing so can hurt your credit significantly, impacting how much you pay for credit and even how much is available. The credit agencies and credit issuers are assessing how much of a risk it is going to be to loan you money. Late payments reflect poorly on the trustworthiness a creditor would like to see.

Use Credit Wisely

You must use credit to build credit. Taking out a small loan and paying it back on time, getting a credit card and using it occasionally are ways to build credit. Start small. Secured credit cards or departments stores can be good starter cards if the major companies are not interested in issuing you a card.

Keep Balances Low

According to FICO, a full 30 percent of a credit score is the amounts owed. They do not release their algorithms to the public, but you will have better credit if the amounts you owe are low. This keeps the total amount you owe as a percentage of total credit extended to you low as well -- a helpful factor. Also, should you have cards you do not use, it may be advantageous to keep the accounts open, even if inactive, as that keeps your total credit extended at a high level.