Avoiding debt...managing your credit wisely

It is difficult to imagine life without having credit. You need a solid credit history to buy a house or a car. Some employers even check out your credit record before giving you a job.

The ability to buy something now and pay for it later creates an obligation to repay the debt. The longer you take to pay off the balance, the more it will cost you in interest. So, managing your credit wisely requires self-discipline so you are able to score well with credit grantors.

All your financial habits are tracked by your credit grantors, such as banks and retail stores. These creditors report their experiences to the credit bureaus, such as Trans Union, Experian (formerly known as TRW) and Equifax.

Creditors use a scoring system to judge whether you meet its criteria. For example, you receive more points if you own your own home and have lived there several years, held a job for a long time, have large balances in your bank accounts and have handled credit responsibly with previous creditors. If you job hop or move frequently, and pay off your debts late, you receive far fewer points. Unfortunately, you don't see your credit score, which is compiled each time you apply for credit.

Interestingly, most creditors will lower your score if you have too much credit available from other sources. Even if you have a spotless payment history, the opportunity for you to go on a spending binge exists in the eyes of the credit-granting agency.

If you think you have a low score, there are steps to take to manage your credit wisely to boost your credit score. You can apply for a secured card, deposit money, make a few purchases and make your payments on time. Consider applying for a department store or gasoline credit card and build small balances, but pay them off in full each month. Over time, your credit score will rise, and you will qualify for unsecured credit cards on your own.

Some additional helpful tips:

• Don't apply for more than one or two credit cards at a time. Each inquiry about your credit is included in your credit report. If too many credit grantors inquire at once, they'll all be suspicious of your intentions.
• Make it a personal rule not to charge disposable items on your credit cards. Purchases such as food, gasoline and even other debts should be paid for with cash as the purchase is long gone by the time you receive your bill. Who wants to finance a gallon of milk for seven months?
• Consider transferring your balance to a lower rate card. If you apply for and accept a lower-rate card, immediately transfer the outstanding balance from your old, higher-rate card. Ask the issuer of the new card if they have actual payment checks that can be sent directly to the old card issuer to pay off your balance. This method can avoid costly cash advance fees.
• Make sure the low rate applies to balance transfers.
• Avoid cards that charge interest from the date of purchase with no grace period as well as cards that charge interest immediately on a cash advance, plus charge a fee for each cash advance.