CREDIT

A positive credit history is an asset, not only when you apply for a credit card, but also when you apply for a job or insurance, or when you want to finance a car or a home.

Establishing Good Credit

Suppose you haven't financed a car loan, a computer, or some other major purchase. How do you begin to establish credit?

• First - Consider applying for a credit card issued by a local store and use it responsibly. Ask if they report to a credit bureau. If they do – and if you pay your bills on time – you’ll establish a good credit history.
• Second - Consider a secured credit card. It requires that you open and maintain a bank account or other asset account at a financial institution as security for your line of credit. Your credit line will be a percentage of your deposit, typically from 50 to 100 percent. Application and processing fees are not uncommon for secured credit cards. In addition, secured credit cards usually carry higher interest rates than traditional nonsecured cards.
• Third - Consider asking someone with an established credit history -- perhaps a relative -- to co-sign the account if you don't qualify for credit on your own. The co-signer promises to pay your debts if you don't. You'll want to repay any debt promptly so you can build a credit history and apply for credit in the future on your own.

How much Credit can You Afford?

Before making the decision to add more debt, you need to make sure that you:

• Allocate sufficient money for your essentials.
• Borrow only for items that you need and can afford.
• Borrow only if you're spending less each month than you take home.

Figure out Debt Repayment

• Start with your monthly take-home pay. This is the amount you have left after taxes and other deductions have been made.
• Subtract the amount you need for necessities and fixed expenses. This includes savings, your mortgage or rent payment, utilities, food, transportation, child care, medical care, clothing, and recreation. Include payments made on a quarterly, semi-annual, or annual basis, such as insurance and taxes.
• Subtract monthly payments for existing loans and credit cards.
• The balance is the amount you can safely apply to debt repayment.

Avoid thinking you can spend all this amount, since emergencies do occur, and you may not wish to use your regular savings account to cover small, unexpected expenses.