What Your Mother Never Told You About Managing Credit

Managing credit is probably one the the most overlooked skills in the financial repertoire. However, it is one of the most important.

You probably remember your very first credit card. I know I do. I was a freshman in college when I received it in the mail. It was a silver-colored Citibank card. My mother had encouraged me to go ahead and apply for it so that I could establish my "credit,"--but she did not explain any more than that. Then I needed a dress for the prom (I was chaperoning for my home-town high school). I didn't have any cash, but I did have my Citibank card. "That is what it is for," I can still hear Mom saying. Wow, was I woefully unprepared for my new credit life.

Luckily, I recovered after a few years of reality set in and I actually had to pay back everything I had charged. It was a difficult lesson to learn and I wish someone had been there to teach it to me right from the start. But no matter where you are in your journey, it is never too late to start managing your credit.

But how does one go about managing credit? Isn't is a lot of work? That depends on how you go about it. Before you give up without even getting started, though, it helps if you know what is involved up front.

Basically, managing credit consists of knowing what is on your credit report , taking steps to protect and even raise your credit score, and minimizing your debt-to-income ratio. These are three separate but related tasks, each of which may be executed in a number of ways.

The easiest way to keep abreast of your credit report information is to hire a credit management service. This can be in the form of an identity theft protection company. You can expect to pay monthly for this service, at an average of $10 per person.

Of course, you could also opt to do the research on your own. Afterall, you are entitled to one free credit report from each reporting database each year. Additional reports can be ordered at any time and usually cost about $15-$17 each.

Once you have the information in hand, you will want to read over it very carefully in search of any discrepancies that could have arisen from incorrect reporting or even fraud. You will want to dispute these immediately by contacting the reporting company and the creditor in question.

Another important aspect of managing credit is to minimize your debt-to-income ratio. Simply stated, your debt-to-income ratio is the amount of your monthly debt payments divided by your total monthly income. Usually expressed as a percentage, it plays a major part in determining how much and what kind of financing you qualify for when making a major purchase, such as a car or a home. Obviously, the lower the better.

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