Managing Credit

The key to managing credit is acting responsibly. Show how responsible you are by following this advice:

Demonstrate stability. If you have a bank account, a stable job, a regular income and the same address for many years, then creditors see you as stable. Creditors consider homeowners more stable than renters.
Pay your bills on time. Get in the habit of paying bills before the due date. Call your creditors if you have a financial crisis. Ask for an extension. Even if you just forgot to make a payment, send it in as soon as you remember. Most creditors don't report late payments until after 30 days.
Have some credit, but not too much. If you have more than five credit cards, you appear overextended. Don't "max out" all your credit cards. Pay off or don't use a card or two if you're getting close to the limit.
Only apply for the credit you need. Every credit inquiry is recorded on your credit report. Several inquiries may be a red flag to creditors.
Keep your debt-to-income ratio at 20%. Creditors look for evidence that your monthly payments on non-mortgage debts take no more than 20% of your net monthly income. This is called your debt-to-income ratio.
Know what's in your credit report. It's your responsibility to correct any problems or errors. For instance, if you have a rather common last name, you might find that someone else's credit information appears on your credit report by mistake. Make sure your social security number appears on the credit report you ordered.

To figure out your debt-to-income ratio, divide your net monthly income by 5. For example:

If your gross monthly pay is $5,000, you should spend no more than $1,000 on debt payments, other than housing.

5,000 ÷ 5 = 1,000

Maintaining credit

 

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