Written by MEG MARCO Photo:MykReeve
The Pope recently issued 10 commandments of driving, so we thought, “If the Pope can talk about driving from the back of his little popemobile, we can talk about credit.” So without further ado, Consumerist’s 10 Commandments of Credit. It’s not everything you need to know about using credit wisely, but it’s a good start.
The 10 Commandments Of Credit
1) Thou Shalt Pay Off Your Balance In Full Every Month.
Keeping a balance on a credit card is a sin in the eyes of the Consumerist. If you have a balance, make it your priority to pay it off as quickly as possible.
2) Thou Shalt Get A Credit Card With Extended Warranty Protection, Cash Back or Reward Points, And Thou Shalt Take Advantage Of Them.
Credit cards can be very useful tools for consumers. Extended Warranty Protection can double a manufacturer’s warranty and costs you nothing. Cash back, obviously, saves you cash. Reward points are useful for lots of things. Take advantage of these tools! They’re there for smart people like you.
3) Thou Shalt Check Your Credit Report.
Go to annualcreditreport.com to check your credit report. It’s free and you can do it once a year. If there’s something incorrect on the report, you can challenge it. Removing old or incorrect stuff from your credit report will cause your FICO score to rise, and that can save you money.
4) Thou Shalt Pay All Bills On Time.
Paying your bills on time helps your credit score and keeps you from having to pay fees. Do it!
5) Thou Shalt Avoid ID Theft. Buy And Use A Shredder, and Thou Shalt Not Fall For Phishing Scams.
ID Theft sucks. It’s not always your fault, but you can take simple steps to help prevent it. Be aware of phishing scams and don’t fall for them. Always type urls into your browser, don’t follow links from emails. Don’t save your banking passwords in your browser or on your computer. Buy and use a shredder. None of these steps takes much effort, but they go a long way towards protecting you. Sure, your credit card protects you from a lot of the financial damage from ID theft, but there’s no reason you can’t be responsible about protecting yourself.
6) Thou Shalt Take Advantage of No Interest No Payments Financing Deals, But Thou Shalt Pay Them Off On Time.
No interest, no payments financing can be great, but you’ve got to ignore the “no payments” part. Make payments. If you don’t, once the “no payments” period is over, you’re going to get hit with interest from the date of purchase… and that interest rate can be huge. Don’t do this! Use the “no payments” period to pay the item off, then you’ve used the store’s money for free.Yay!
7) Thou Shalt Avoid Interest On Consumer Debt. Thou Shalt Try To Pay Interest Only On Student Loans, Mortgages And Car Loans.
Sort of self-explanatory. It’s not a wise investment to be paying interest on soap and tacos. If you don’t have enough money to pay your balance off every month, look for ways to cut your spending.
8) Thou Shalt Keep Thine Credit Utilization At A Reasonable Level.
Credit utilization is important to your FICO score. Basically, you don’t want to use all the credit available to you. Don’t max out your credit! Lenders will approve you for more than you can afford. Remember that.
9) Thou Shalt Not Cancel Credit Cards, Thou Shalt Try To Keep Them Open So As Not To Shorten Thine Credit History.
Length of credit history is important to your FICO score. If you don’t want to use a card that you’ve had for a long time, that’s fine, but don’t actually cancel the card. Just don’t use it, unless it has an annual fee and you really want to get rid of it.
10) Thou Shalt Not Constantly Obsess Over Thine Credit Score. Life is too short.
Following these commandments should help your credit score, but remember that its not written in stone. It’s more of a snapshot than a grade. It can always go up and down, and it will. While it’s important to be mindful of your credit report, don’t let it ruin your life. Smile.
We know you have your own commandments to share, so leave them in the comments and help our readers learn about managing their credit wisely!
Haha, thats a great article – it would be great if there was a list of rules that the credit card companies had to follow too to help keep them honest as well. But seriously, this list is very good and something that any credit card consumer should read. Its hard to keep track of all the rates and charges credit card companies have these days and consumers need to be wary. One company I do some work with and they’re trying to help spread the word about interchange fees which are also hitting consumers in addition to small businesses. The more consumers are informed the better, but the industry on a whole could use some more accountability as well.
This is very sound advice overall, however as someone who has had credit issues and is currently trying to rebuid his credit score I have a little addendum to add to your #1. While being debt free is the most desireable in my opinion, I have been informed by several different sources that paying off your balance every month will not help you in terms of building your credit or improving your score.
The reason for this is precisely because of your #7… they want to make money off of you. I by no means encourage anyone to carry any unecessary debt. In fact if I could get by without ever having to use any credit I would, but if yu want a higher FICO you have to play their game.
What has been suggested to me is to set an acceptable balance to carry (this will very per each individuals financial status), and not to let it go too far above that. Always pay it down to at least that level and then keep up with your minimum payments.
The real reason for your #9 has a lot to do with these same crooked lines of thinking on the part of credit card companies. Without getting into the math of it sometimes canceling a bad credit line will do more damage to your score than just keeping it open even though you’re behind on it. Apparently it has more to do with a certain ratio of actual debt/potential debt than it does with the “history” of your credit usage.
I remember reading an article somewhere that used Ben Stein as an example. It said that although he spends a small fortune in credit card expenses every month and pays off the balance immediately his credit score is horrible because the credit card companies aren’t actually making any profit from him.
Commandment #11
Thou shall save money each month FIRST before learning to live off the rest. This is the devine truth and difference between the wealthy and those living paycheck to paycheck. It keeps a person from having credit problems when they build their wealth don’t you think?! Thanks for the great article..it was a fun to read.