As we grew up and started using credit, the loudest message we heard was “Make sure to pay off your credit card each month!”. That is great advice and something we should practice. But what if one month comes along where you can't pay off the full amount? What strategies should you put into place to help maintain your credit score and help you pay off your credit cards?
Credit does not have to be complicated and there are simple ways to help you maintain good credit, help you pay off outstanding balances and ensure your overall finances are in good shape.
Minimum Payments:
Life can throw you many hurdles (losing a job, medical emergency, Pandemic). I myself have had times where I used the full limit on my credit card(s) and, because of a family emergency, was not able to pay it off in full. At the very least, make the minimum payment so that your account stays in good standing. Minimum payments are just that, the bare minimum the creditor is willing to accept to ensure your account stays in good standing. It only takes one missed minimum payment for your credit score to start dropping. Not only that, late and missed payment are reported on your Credit Report. This is the same report that creditors review when you apply for new credit. If they see you have a history of missed or late payments, they may not grant you new credit.
Credit Utilization:
Credit utilization is one of the biggest factors that determine your credit score. Utilization is the amount of credit you have used (credit balance) versus the amount of credit you have available (your credit limit). Credit utilization also tells creditors if you are using your credit as a Cash Management tool or as a form of Income Supplement. If you are using your credit to supplement your income, creditors can see this as it usually leads to high credit card balances in short period of time. The magic mix is 50%.... try to use no more than 50% of your available credit at anytime. If you do use more than 50%, work to pay it off as soon as you can (but make the minimum payment at the very least until you can pay off the full balance). You will be amazed at how quickly your credit score increases if you maintain your utilization below 50% and pay off your balances regularly.
Budget Planning:
The best tool to help manage your credit is a Budget Planner. Using a budget planner will help you identify all the income coming into your home, and then, help you keep track of all your expenses (contact me to get your FREE Budget Planner). The planner I use does all the calculations for you and provides a column for you to input “Projected” income and expenses in case of job loss or changes in family situation (i.e. new baby, medical emergency, etc.)
Credit management and Budget Planning go hand in hand. Never use one without the other. Make a good budget for yourself first, then use credit to handle your expenses. Doing these simple steps will ensure your credit stays strong, your finances remain in order, and, when the time is right, your home buying and mortgage approval process are as smooth as can be.
