Taking steps towards improving your financial situation includes understanding how to manage your credit wisely. If you don’t take credit seriously, you may run into issues when applying for a mortgage, car loan, or a credit card. Using credit responsibly can help with financial security and stretch income further by reducing your interest rate due to a higher credit score. Here are a few other things to keep in mind to help you be smart using credit:
Review your credit report annually
Review your credit report for a complete view of your debt and lines of credit, and check for errors. Reviewing your information will help you gain confidence by allowing you to stay on top of any changes.
Set up a budget and reduce credit usage
Credit should not be used to purchase items you cannot afford; it is a tool to show lenders that you are trustworthy in paying them back. By setting a budget and living within it, you will avoid using credit to overextend yourself.
Pay your bills on time
Late payments impact your credit score negatively and affect your ability to open new lines of credit since your trustworthiness is in question. Paying your bills on time is extremely important.
Use caution when closing accounts
Closing an account can increase your overall credit utilization rate. However, it can be helpful if you want to eliminate cards with high-interest rates or annual fees. Make sure you have ample credit available to you before closing an account.
Why consolidating debt may not be appropriate for you
Debt consolidation is the process of combining two or more debts into a single, more considerable debt. Debt-burdened consumers often choose to consolidate, but there are a few things to keep in mind when considering consolidation:
Consolidation is not a solution for solving financial problems and does not guarantee that you won’t go into debt again. If you have a history of living beyond your means, you may do so again in the future. Here are some reasons consolidating debt may not be appropriate for you:
- There may be up-front costs. Some debt consolidation loans come with loan origination fees, balance transfer fees, annual fees, and closing costs. Make sure you are aware of all fees before consolidating.
- You may end up paying a higher interest rate. The new loan could come with a higher APR than you had initially thought. Ensure to do your research before signing a debt consolidation loan.
Making smart choices when it comes to credit use is critical to your financial future. Work with your financial professional if you need help managing your credit or have questions regarding if debt consolidation is appropriate for your situation.
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Being smart with your credit is one of many ways you can improve your financial situation. Make sure to sit down with your financial professional and discuss all your options. Talk to us today!