Credit cards make our lives a whole lot easier, we can shop around as much as we like without having to worry about whether or not we have brought enough cash. The problem here is that we can end up having a lot to worry about in the not too distant future, the bills start adding up and we become unable to pay them on time so we get low credit scores.
You may think that having a bad credit history is not all that bad, after all, as long as you have enough cash lying around you can pretty much get by, you’ll just pay for things the old fashioned way from now on. Well we have some news for you – your credit history will be one of the first things a potential employer will look into when performing a background check, right after finding out why and on what terms you parted with your previous employer. Some states in the US have laws that state that checking your credit history without your permission is unconstitutional, but this doesn’t help much – if they do ask your permission and you refuse they will take this as a bad sign. You will also have trouble when applying for loans, as the bank needs to be sure that you are able to pay them back they are going to take every precaution they can before they loan you money – this will include getting information on your annual salary and credit history. The same thing applies when you try to get insurance.
Even if you can somehow get by without loans and you have a steady job, a lot of stores no longer accept cash as payment, and the banks have fines (about 30 dollars) for every charge that comes in while you are in the minus zone, these will add up and you will only become aware of them once you see the bill.
If you owe small amounts of money, your best bet will be to carefully plan how you will spend your budget and set aside funds for specific items, services and daily grocery shopping in advance. This way you can get better insight into what areas can be cut from your budget and which products and services can be downgraded to a more affordable alternative so that you can save enough money to make the payments.
If you have a large amount of credit though, you will need a slightly different approach. You can try getting a credit card with a minimal limit to help get you started on your way to managing your credit scores more efficiently, just make sure you go through credit reviews on a regular basis. The people that issue credit cards will go through your purchasing patterns once a year, and, much like Santa Claus, will reward you if you have been good (if you spend very little from your credit card) by raising your score or punish you by lowering your score if you have been bad (if you keep spending a lot, going further into debt). A good way of raising your credit score is by decreasing your credit risk. You can do this by having several active accounts with available credits. Keeping a couple of active credit cards open simultaneously will also help, just remember not to close an account as soon as a card reaches a zero balance – this can actually lower your credit score.
Finally, you should bare in mind that the FICO score is comprised of these elements: 35% is payment history, 30% is credit utilization, 15% is length of credit history, 10% is types of credit used and the last 10% is recent searches for credit. So by just paying your bills on time and lowering the credit utilization ration will cover 65% of your problem, while a long positive credit history and efficiently managing different types of credit will help further improve your scores.
As you can see, properly managing your credit scores will help you come across as a trustworthy person to both banks and employers and benefit you in the long run. The best thing is that all that it takes is a little planning and common sense, so take our advice and you will reap the benefits.