Credit Cards: Risky Business

By: Lynne Albright

In today's world, emphasis is on the small, rectangular pieces of plastic almost everyone carries in a purse or wallet-credit cards. Carrying cash is considered dangerous and using debit cards equally perilous if they are stolen because it is agonizingly difficult to get reimbursed for funds illegally charged by a thief.

Additionally, you run the risk of disparaging looks from fellow consumers if you
dare to slow their whirlwind shopping pace by writing a check! So you sheepishly whip out the plastic. But when you do that, you are playing right into the hands of
the credit card companies who absolutely love to extend credit to you and will even lull you into further debt by bombarding you with convenience checks.

By using credit cards for any and every type of purchase, you run the risk of over-extending yourself right into a jam. Many financial advisors recommend using the credit cards only for major purchases-something that you would not have enough cash in pocket or funds in your checking to cover. That way, you control your credit card balances and keep a tight rein on your debt-to-credit ratio. (That is a percentage arrived at by comparing what you owe to the amount of credit you have been granted in unsecured revolving accounts. For instance, if you owe $8,000 and have a high credit limit on all your accounts of $10,000, you have an 80% debt-to-credit ratio. )

That's a very high ratio and liable to be scrutinized carefully by credit card companies. You are better off to keep the ratio to a lot less than 50%, pay more than the minimum monthly amount and always pay early if you want to maintain a good credit rating.

If you are already in hot water with bad credit and a low FICO score, you can improve your score by adhering to the above advice. Pay down your debts as quickly as you can until you have a lower debt-to-credit ratio, pay more and pay early. And do not resort to loans from a finance company!

You can also improve your score by obtaining a merchant charge card. This will usually allow you to only purchase merchandise that the merchant is selling, not make charges for any other purpose. But the big advantage is that it will raise your credit limit and give you a much better credit profile and debt-to-credit ratio without the usual high interest rates and possible annual fees charged by the major companies.

If you are unfortunate enough to have had to file bankruptcy, your options are more limited initially. A general rule of thumb is that lenders will not consider lending you money for a major purchase like a home until your bankruptcy has been discharged for 24 months. But in the meantime, you will have time to repair and rebuild your credit. You can get a secured credit card, which means you will give a bank an amount, anywhere from $200 to $10,000, that you then may charge against up to the limit you have chosen. This will help to reestablish you in the plastic domain.

To repair your credit necessitates getting copies of all of your credit reports, Equifax, Experian and Transunion. You are entitled to free reports once every twelve months. For information on how to get these, refer to the resources box below.

Do not bother with the so-called free reports that are widely advertised. There are no free lunches! If you apply to one of those companies, you will have to sign up for their services in order to get the reports,

Once you have the credit reports in hand, the next step to repair your credit means correcting and/or eliminating misinformation. There are very specific ways to handle this all-important part of the process and submitting queries in the wrong way or at the wrong time can complicate your credit recovery. If you would like further information, please visit me at the site listed below.

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