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Managing Your Credit

By Edited Jan 23, 2016 0 0

Credit is very important. If you are driving and you break down in a strange city, it is very convenient to have a credit card. Many places won't even loan you a rental car with out a credit card. In addition many credit cards have rewards programs. If you use your credit card like a holding pattern, and pay off the balance every month in full you can earn interest on that money in your checking account for 30 days, while avoiding interest on your credit card as well as earning rewards.

But Credit is not just about credit cards. When you go to a bank to open a checking account they run a simplified credit check on you through a company called chexsystems. Within a matter or minutes or days the bank will be alerted if you owe another bank on bad checks. You will probably have your new account closed down unless you can prove you made good on the checks listed on the report. If you are on a joint account you will be dinged even if you personally were not the one who wrote the checks. It is very difficult to pay bills without a checking account, so I advise you not to write bad checks.

A more extensive credit report is run if you go to rent or buy a home, attain a new credit card or get a loan. There are three major credit companies that house information on your and your payment history. A good credit report reflects that you pay on time, that you have little debt in proportion to your approved credit, or that you pay loans off early. Good credit enables you to get lower interest rates on new loans. Bad credit effects you in every way, including being denied for a car loan, a home equity loan or a first mortgage. These days even people with very high credit scores are often denied home loans.

In the past potential employers liked to run credit checks on prospective employees. The thought was a person with good credit would be less likely to steal, be more honest, reliable and trustworthy. With the general break down of our banking system this process is now frowned upon as a needless invasion of privacy. Some people with very high salaries walked away from their mortgages because they were upside down on the loan. Not wanting to pay a loan for $600,000 on a structure appraised at $100,000, does not necessarily make someone bad prospective employee.

In the past twenty years debit cards with the mastercard and visa logo have become very popular. While they are accepted everywhere credit cards are, they do nothing to build up your credit history. In addition, if your debit card is compromised, the money is stolen right out of your checking account. You lose access to that money until the fraud is straightened out. You may even have to close and reopen your checking account.

A better solution is a prepaid credit card. It has the convenience of a credit card, but the limit is structured by how much you load on the card. You can have a credit card with a very low amount. That way, even if you lose it, you won't lose much. Some of them are re-useable. Some require you to open a savings account that matches the amount of credit you are issued. This is a good way to get started with credit cards if you have no credit history.

A word to the wise: no credit is better than bad credit. Don't open a credit card or a line of credit if you have no means of paying back the loan.



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