What are the objectives of credit management

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What Are the Objectives of Credit Management?

How you manage your credit can make or break your personal finances. Credit can be a helpful tool to get

the things you need and want, and it can also lead to your financial downfall if you are not careful.

Using credit wisely can provide a lifetime of access to opportunities, but misusing credit or accumulating

debts you are unable to pay can hurt you financially and shut doors you may not have even considered.

Whether it’s due to youth, inexperience, lack of knowledge, or a personal financial crisis, many people

have made regrettable financial missteps over time and find themselves in a bind when it comes to

managing their credit.

While you should forgive yourself for getting into a compromised financial situation, the most important

thing is to learn from mistakes that have affected your credit so you don’t make them again. And if you’ve

been fortunate enough to avoid negative marks on your credit thus far, it’s equally important to

understand how to stay out of credit trouble and how to use credit to your advantage.

The bad news is, credit-related blunders can stick with you for years. Poor credit management can wreak

havoc on your financial health and reputation. Once debt starts to pile up or negative marks hit your credit

report, it can be difficult to dig yourself out of a hole and repair your good standing.

But the good news is, it is possible to recover and get back on track. And the even better news is, you can

learn how to manage credit wisely to avoid that trap in the first place or ensure you never find yourself

there again.

What is credit management?

In managing your personal finances, your primary credit management objective should be to avoid

excessive debt. Put simply, you should not be borrowing any money that you can’t pay back easily without

straining your budget or getting behind on payments.

Your mortgage, car financing, credit cards, and other lines of credit are costing you money in terms of

interest, but they may be the key to leading a comfortable lifestyle. Even people who can afford to pay

for homes, cars, and other expenses in cash often use credit to manage cash flow, keep their assets

invested, or take advantage of credit card reward programs.

With responsible credit management, you use credit to your advantage and avoid the possible pitfalls of

poor credit management. The key is to follow conservative spending guidelines, using a minimal amount

of credit relative to what the banks are willing to lend you. Your income and the amount of money you

have available to pay your bills should serve as your compass for how much debt to accrue, not the

maximum limit for which you qualify.

Why is it important to manage my credit?

Far too often, people allow lifestyle spending to get out of hand, bloating their budgets, living beyond

their means, and overextending their credit. Whether resulting from unexpected job loss, sudden illness

or injury, a major financial blow, or out of control spending, the damage that comes from overextended

credit can hit you quickly and have long-lasting effects.

Having damaged credit is a dangerous situation to be in and can lead to troubles nobody wants to face,

including foreclosure, repossession, paycheck garnishment, asset seizure, bankruptcy, and even

homelessness.

What you may not realize is having negative marks on your credit or a low credit score can restrict your

life in a number of ways. A lower credit score means the lender is taking a greater risk. It may prevent you

from qualifying for a mortgage or even an apartment rental. It requires you to pay large deposits or down-

payments and dramatically higher rates for access to simple things, such as utilities, a mobile phone plan,

or car insurance. You may not be able to get a credit card or a bank account. It can even prevent you from

passing a background check to get a job.

The objective of credit management is to demonstrate that you are trustworthy, reliable, and responsible

with money. Although major medical expenses or other unforeseen circumstances that are outside of

your control happen, it’s always important to do whatever you can to prepare for the unexpected and

protect your finances as much as possible. Careful credit management is a big part of that equation.

What steps can I take to manage my credit?

At its most basic level, good credit management simply means keeping debt to a minimum, paying off

debts you’ve already accrued, making your payments on time, and reviewing your credit report regularly

for errors. But to improve your credit score and maximize your creditworthiness, you will want to follow

some best practices for credit management.

Make Payments On Time

Remember, your payment history is the most heavily weighted factor in your credit score. Paying all of

your bills on time every month is the best thing you can do to manage your credit wisely. Any payment

that is over 30 days late can damage your score dramatically and immediately — as much as 100 points in

one hit. At the very least, make your minimum payment due to avoid such penalties. Set up auto-

payments or payment reminders to ensure you never miss a payment if you can avoid it.

Use Less of Your Available Credit

Just because the credit has been extended to you doesn’t mean you should be using it. You should strive

to utilize less than 30% or ideally less than 10% of your available credit on each card, keeping in mind that

this is the second-biggest metric in determining your credit score. So if you have a credit card with a

$10,000 line of credit, limit the balance you carry to no more than $3,000, preferably less than $1,000,

and ideally paid in full each month. And if you need to make a big purchase, it may help to spread it out

over several cards to keep the utilization percentage lower on each card. Another tip is to make payments

prior to the due date to keep the reported utilization low.

Manage Your Credit Limits

One way to avoid excessive debt is to limit your credit lines. When it comes to revolving accounts such as

credit cards, a general rule of thumb is to limit your total available credit line to no more than 20% of your

total household income. So if you make $100,000 per year, your total credit lines should be no more than

$20k. This guideline assumes that paying back more than this amount would be difficult and having access

to more would tempt you to use it.

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What Are the Objectives of Credit Management? How you manage your credit can make or break your personal finances. Credit can be a helpful tool to get the things you need and want, and it can also lead to your financial downfall if you are not careful. Using credit wisely can provide a lifetime of access to opportunities, but misusing credit or accumulating debts you are unable to pay can hurt you financially and shut doors you may not have even considered. Whether it’s due to youth, inexperience, lack of knowledge, or a personal financial crisis, many people have made regrettable financial missteps over time and find themselves in a bind when it comes to managing their credit. While you should forgive yourself for getting into a compromised financial situation, the most important thing is to learn from mistakes that have affected your credit so you don’t make them again. And if you? ...
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