Recently, we’ve given a lot of attention to ways credit can be rebuilt after one’s scores and history have taken a hit. And with millions of Americans in that quagmire these days, courtesy of high unemployment numbers, even higher foreclosures and rising bankruptcies, it’s a very important topic in out contemporary society.
This week, however, we thought we’d take a look at some of those less than ideal credit habits many are finding themselves in and ways to break them or avoid them altogether. The best part is that these habits aren’t really going to require drastic changes; think of it as a bit of fine tuning and a decision to be proactive rather than reactive in your decision making process.
Motivate and Commit
It doesn’t matter what it is: our commitment to dropping a few pounds, increasing our savings each month or promising ourselves we’re going to bite our tongue when our mother in law visits next month, it all begins with a motivated commitment. The same is true when it comes to a disciplined approach to our spending and the use of credit cards. Without it, you’re wasting your time.
Past, Present and Future
First things first – if you haven’t requested a copy of your credit reports, now’s the time to do so. By law, you’re entitled to a free credit report from the three major credit bureaus. You can visit the Equifax, Experian and TransUnion. With those in hand, you can see how your past buying habits have affected your present credit scores. Now that you have a realistic knowledge of what you’re up against, it’s time to put your plan in action to ensure your future is well protected.
Identify and Target
Do you recognize yourself in any of these scenarios: transferring balances multiple times to stay ahead of a lower rate? Disregarding the importance of a budget? Missing an occasional payment because you’re convinced any effects (lower scores) are only temporary? Maybe you’re prone to giving in to those impulse buys?
Are having to carefully “stack” your credit card payments so that at least one or two are being paid out of each paycheck? And finally, this last one is likely something all of can attest to doing at some point: are you charging your morning coffee and pastry or other similar petty cash charging? These are all bad habits that might not seem significant in the moment, but that can really affect the “big picture” and most certainly those effects can haunt you for many years.
Now that you’ve identified and taken a hard look at your spending habits and credit scores, it’s time to define some new habits so that your slightly disappointing reality doesn’t become a “worse case scenario nightmare”. First up, it’s time to eliminate those impulse buys. If you can’t trust yourself to go into the mall without leaving with some new “happy”, leave the credit cards at home. And speaking of unnecessary charges, you might be shocked to learn just how much that morning joe is costing you if you carry a balance each month. It doesn’t matter how great that coffee is, it’s not worth what you’re going to pay in interest charges.
Next, it’s really important to get out of the “minimum payment” mindset. If you’re living paycheck to paycheck, you’re obviously not in any position to pay your balances in full at this time; however, you can likely afford to pay two or three times the minimum payment due for awhile. That is, of course, if you’re willing to cut down on your spending.
Another important though overlooked good habit includes a careful review of your credit card statement each month. You’d be surprised at how many people leave the bill on the counter, unopened, until it’s time to make their payment and even then, many folks look at one thing: the payment amount that’s due. Even if your statement is always accurate, keeping up with those statements can serve as proof, in black and white, that your commitment is paying off.
Finally, it’s time to sit down and draw up a realistic budget for your finances. It’s difficult to know what your goals are if you can’t quantify them. A budget is another great way to ensure you’re on track. Be sure to include your savings account in your balance – seeing that number increase each month is a strong incentive and makes for an ideal motivator.
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