Credit Management Plan
One of the most vital life skills required in the modern world is credit management skills. This may seem like stating the obvious, but against the backdrop of day to day financial pressures, people often forget that they must pay attention to managing their credit profile. It is not difficult to accomplish and a sound credit management plan can be integrated into our busy lives. In this way, good credit can be protected and bad credit can be gradually stabilized. So what exactly is a credit management plan? Well, this is a name we give to a set of rules and guidelines we make for ourselves based upon our individual circumstances pertaining to managing our credit rating. The end goal of a credit management plan is to safeguard our good credit standing and in cases of bruised credit, the end goal is to gradually improve the credit. The reason we should actually sit down and make a plan is so that we will be able to learn more about managing credit through this exercise and the simple process of giving a proper name to something can in fact set a personal goal for us to achieve. Credit management should be approached from two root approaches based upon your circumstances. One approach applies when you have adequate household income to pay all necessary expenses. The second approach applies when total household income is not enough to pay all household expenses. In either approach, the end goal of credit management is the same: protect and/or improve credit.
Credit Management when household income is sufficient
When total household income is enough or surpasses all necessary expenses, then it is a reasonably safe assumption that your credit rating will be either good or on the way to recovery. In this case the main goal of a credit management plan is to protect the good or improving credit from any negative impact. One of the first things to consider in this scenario is whether there is any disorganization that is resulting in any bills not being paid on time. Often, one of the biggest stumbling blocks in credit management is simply disorganization. Sticking a utility bill on the fridge with a magnet for example is a sign of disorganization. Make sure that you have a proper system for receiving all incoming bills, listing their due dates and then following through on time with payment. Another reason why bills may not get paid on time despite having sufficient income is the timing factor. Carefully look at your bank statements and bills from the previous 3 or 4 months to determine if a bill was paid late by a few days or weeks because there was not sufficient cash available to pay on the due date. If this has happened, then you should try any forecast such cash shortages in the future and your credit management plan should include notifying the creditor that payment will be delayed a few days; give the creditor a date that is a few days after receiving the next paycheck to ensure that you are able to honor your commitment. Remember that a central aspect of good credit management is keeping a good line of communication open with creditors. They will likely not have an issue with being advised that payment will be received a few days late, they actually would appreciate it.
Once you have addressed handling the disorganization and short term cash shortage you can now move onto being proactive with your credit management. Make sure to use your credit cards often but always payoff the full balance by the due date. Frequently using and paying off the card opposed to not using it at all is important so that creditors see activity on your revolving account and you are able to show them that you have the cash flow to pay for your credit purchases. You should also use any extra funds left over at the end of each month to pay down balances on installment loans such as auto loans. If possible use some of the extra money towards paying down the principal on your mortgage. These proactive measures will not only guard your good credit but will enhance it further; creditors will start to see a history of good credit management emerge in your report. Finally, no credit management stategy would be complete without keeping a very close eye on your credit file with all the major bureaus. You are entitles to receive a free copy of your report, so use that entitlement and check for any mistakes on the report. Immediately notify the bureau in writing of any mistakes or fraudulent entries discovered.
How should you manage your credit when your income is lower then expenses
Before starting to read here, understand that credit management in a inadequate income scenario is a very short term strategy for guarding your credit. As time goes on, the lack of funds will inevitable result in damage to your credit since it will not be possible to pay bills on time. This section should be used as a guide to short term credit management while you figure out how to either increase household income and/or decrease expenses.
When money is very tight, your credit management plan is aimed towards minimizing the impact the lack of cash will have on your credit rating. Concentrate on paying off smaller accounts in their entirety as fast as possible. For example pay off small balances on department store credit cards and overdue traffic tickets etc. You need to first reduce the total number of credit accounts. Next concentrate on making sure that at least the minimum payments on revolving unsecured loans such as credit cards and credit lines are being paid monthly. In such a scenario, your credit management strategy should consider income from every member in the household as pooled income aimed at paying the bills and minimizing the credit impact on all members; team work is essential. When you get your paycheck, pay the majority of it towards your credit cards, then use the available credit in those cards to pay for recurring expenses; eg. Pay for groceries, gas, essential clothing, utilities etc with your credit card. Paying your credit card first and then using it will ensure that the account stays in good standing while those funds can be reused to pay for other essentials. If the cash flows is very tight, consider talking to a debt management organization in your local area to discuss consolidation loans; always ask the debt specialist about ways to consolidate without hurting your credit; things such as consumer proposals to your creditors will leave a very big blemish on your credit profile. Above all, remember that this type of credit management is temporary and use as much time as you can to increase your income while minimizing your expenses. Finally, make sure to order credit reports from the credit bureaus at least twice a year to make sure that the creditors have properly reported all payment made, that your balances showing are accurate and that there is no fraudulent activity on your credit report. Write to the bureau as soon as possible if any such entries are found.
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