I’m one of those who uses credit quite conservatively so my take on borrowing is fairly simplistic. A while ago, NCN profiled a bunch of bloggers, to see where they stood on debt and credit. According to NCN’s analysis, I’m a “housing borrower”, which means that the only loan I have right now is a mortgage. It’s true, I haven’t borrowed much; however, I use my credit cards liberally for other reasons. Since I have rewards tied to my credit cards, I figure I’ll make it worth my while to earn something back from the money I spend anyway.
Even though I’ve tried to properly manage my credit, I’ve still managed to commit some credit related mistakes. It’s also the case that I’ve been doing some things right. So here’s my report card on this.
Credit Mistakes I’ve Made
I’ve failed to pay a monthly payment on time.
Late payments! Yes, I’ve messed up on occasion and forgotten to pay a bill or two on time. I realize I’ve got to get my bills on auto payment mode and I’ve dragged my feet on this. Maybe it’s because I secretly wonder whether by going automatic, that I’d do something worse: could I become less careful about what charges I make since I’d take the payment process for granted? With the convenience of auto pilot payments, I may be less inclined to review my statements. I brush off momentary doubt and convince myself it’s worth doing to avoid dings in my credit score.
I don’t really check on card interest rates. I base my selections on rewards and freebies.
Could this be a mistake? My card shopping criteria completely relies on what kind of rewards I’d receive for spending. I actually favor cash back credit cards and pick them based on their credit card rewards programs because we’ve always paid our balances in full each month. We only use cards for convenience and if we happen not to have cash on our person. It’s been said, however, that not reviewing the interest rates is a mistake in the off chance that you carry a balance. But we’ve promised ourselves never to use the cards unless we wipe our slates clean each month, giving us the opportunity to choose cards with the best terms and features for our particular situation.
I’ve closed credit card accounts that were unused.
In my quest to simplify our finances, I’ve gone ahead and closed accounts we don’t use or plan on ever using. Bad move? Well this could be a mistake as far as preserving a favorable FICO score. It’s to do with that credit to debt ratio… Well hopefully the effect of our closed accounts won’t be such a big deal.
We haven’t reviewed our credit scores regularly.
We’re lame about this — we need to check our credit rating more often and perform regular credit report monitoring. As far as I know, we’ve got good credit and my guess is that we should score in the 750’s or higher (total speculation). Let’s see if this is the case when I do our review shortly. Yes I know….It’s imperative that we check our reports regularly to make sure that there aren’t errors, to see that nobody’s cloned our identities and to determine who’s made inquiries on our credit. Any kind of status check is good for the financial soul since it keeps us honest and on our toes.
So how about I counteract those boo-boos by mentioning some of my positive credit habits?
Credit Management I Did Right
I mentioned earlier that I pick and screen for credit cards based on assumptions of how I’m to use the card. For a great majority of people, choosing a credit card would primarily involve checking the interest rates. In my case, this is the selection criteria I use: no annual fees, good rewards, online access, reasonable grace period, no transaction fees and is rated “high” in terms of public ratings. Notice no mention of interest rates in that list.
I pay everything in full.
I’m committed to this goal. As part of my role as the “finance go to person” in our family, I also have to pay the bills. It’s our policy to pay all in full each month. But as I mentioned, once in a while a late payment slips by. I’ve only myself to blame and my harried lifestyle. Poor excuses for sure….
We keep our credit cards to a minimum.
This means that we only carry a few cards: one personal card each and one business card used jointly. I like to keep things simple since you already know that my problem here is trying to stay organized! Minimizing the number of cards is a big help. I also have a Target card that I shouldn’t have opened since I’ve only used it once to get a 10% discount on my first purchase. Now it’s a pain that I have to keep it around! Sometimes, I get quite envious about how some bloggers have become such whizzes on credit, so much so that they are able to use it to generate money by using balance transfer credit cards. What a concept! I clearly don’t have the mindset for card arbitrage and I strongly recommend you don’t try doing the same thing unless you know what you’re doing.
I never take cash advances.
It is clear what we use cards for — we only use it when necessary and never for cash advances. Doing such a thing could be a warning sign that you’re already in some financial trouble, especially if you’re perennially short on cash.
I review my credit statements.
Faithfully, I do. Everyone needs to do this to make sure you don’t have billing errors or fraudulent activity against your card. It’s too easy to forgo this step as it may not be in your habit to scrutinize bills, receipts and stuff, but I don’t know anyone who’s never experienced card billing issues before. I’d be surprised if somebody told me they’ve never seen fraudulent activity in their card accounts. That would be the exception!
I used to think I was a wise manager of credit, but after some review, I could certainly use some improvement. Even with my pure intentions of paying everything in full, I’m still not as on top of our bills as I should be. Though our problem is not one of affordability (as we only charge what we can afford), but of streamlining our credit payments, records and reports better. It’s really more a question of organization.
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I’m about to take out a car loan to the tune of around $14,000 – which will be my first and only debt (no student loans, always pay credit cards in full).
I need safe, reliable, economical transportaion and I plan to hold onto the car for 10+ years, so I figure it will all work out in the end =)
Click my name and you will find some interesting math concerning prepaying vs investing in regards to this specific loan.
I agree. I just got fouled up on the payments, too – I confused which is my automatic bank deduct and which is to be paid by check. (I use the automatic for the smaller balance card and the checks for the bigger items.)
I wrote a post awhile back about freebies, affinity cards, and other do-good benefits. We just went with a Working Assets credit card for my daughter for college, since they support so many great causes.
http://moneychangesthings.blogspot.com/2007/04/miss-american-credit-card.html
MoneyChangesThings,
I’m glad I’m not the only one who’s fallible when it comes to this sort of thing. For someone who’s a fairly good manager and multi-tasker, I frequently surprise myself over my organizational shortcomings. One of the things I kick myself over is how absent-minded I can get, especially because it’s normally uncharacteristic of me to be this way. It’s quite possible that age is catching up to me — you know, I blame those middle-age brain fogs that start to hit you in your late 30’s…. or when you start having kids, whichever comes first.
There’s no question that discipline is the key to managing credit and debt. Creditors and card issuers are absolutelyrelying on our lack of discipline for late payment fees and higher interest rates. But there’s no doubt that discipline is your best defense against managing your credit cards and credit card debt.
http://www.nytimes.com/2007/02/18/us/18debt.html?fta=y
The easiest way to avoid late charges is to sign up for auto-payment of the minimum balance on the due date for each card you own. Everybody should do this – it takes about 10 minutes to register for the website and schedule the payment, and then you never have to worry about late charges again. Late payments are just lazy or stupid, now that you can schedule auto-pay.
Of course, you don’t want to be making only minimum balance payments. So, each month, when you would have paid your bill regularly, go to the website and check the statement and make your regular payment (hopefully, payment in full). Schedule the payment for the day *before* the payment is due (or earlier, if you like). That way, the regular payment is there, and when the minimum balance auto-payment comes due, there *is* no minimum balance due, because you’ve already made your regular payment.
The minimum balance auto-pay is only there to protect you if you happen to make a mistake.
This is a very interesting view on credit card management. I have made the same mistakes that you mentioned as well as the same wise choices. I also use a no-annual fee, cash back credit card for all my purchases. However, I have a very high interest rate and haven’t asked to have it reduced! I don’t check my credit score as often as I should and I have closed unused credit card accounts. I haven’s missed a payment and pay the balance every month. Thanks for the insights!
something that i would never do is get into debt to buy a luxury or toy so that i can impress my friends or prove to anyone that i have gone up in the world. The only debts that i would tolerate are investing debts like the margin loans, business loans and anything that i can use to increase my net worth over time — but i am also extremely wary of these too.
A business loan would probably be the only form of debt I would take on. A margin loan can be much more risky. A business loan you are investing in your self and have much more control of the situation where with a margin loan your usually in passive investments such as stocks and bonds where someone else is in control.
Credit cards are wonderful. So long as you pay in full each month (which I do by autopay) they are all benefits and no downside.
I only use debt for real estate loans. I tried margin finance for shares when I was much younger but prefer not to deal with the volatility these days.
We had a couple late payments in the last few months. We moved into a new home, had some internet problems and throw in moving “clutter”. We hope to stay on top of it now (fingers crossed).