Building a good credit reputation and attaining a high credit score is not easy, especially for people who like to spend, or those who like to justify buying with “it’s on sale,” or “If I don’t get it now I might never see it again.” You were able to attain a very good credit score through sheer discipline and hard work. Now that you’ve gotten this far, it should be smooth sailing from now on – if you follow certain rules to keep your credit score that way.
Pay off your credit card and other balances every month. This will help to ensure that you live within your means, and are able to avoid paying thousands of dollars in unnecessary interest in your credit debts. It will also make you more flexible in case you fall upon difficult times such as a job loss or divorce.
Start saving and keep an emergency fund. Set aside a portion of your salary and whatever extra cash you have each month, and put it in a savings account or money market mutual fund. No matter how old you are right now, it is never too late but the earlier you start, the better. Financial gurus recommend having at least 6 to 12 months of emergency funds at any time. This will allow you to avoid extra credit if ever you need to pay for financial emergencies.
Make sure you have sufficient insurance. Health insurance can be expensive but medical bills, if and when they happen, have the capacity to wipe out entire savings and are the cause of many bankruptcies.
If you can’t afford it, don’t buy it. With a good credit score, you’ll find that lenders will easily allow you to borrow more money. If you’re eyeing a new house, ask yourself if you really need to buy a new one, consider whether this is something you can afford in addition to your other expenses, paying your debts down, and adding to your savings. If you do decide to buy a new home, financial gurus suggest that you limit your total housing payments to no more than 25% of your gross monthly income.
Don’t spend beyond 50% of your after-tax income on fixed expenses. Fixed expenses – your groceries, utilities, clothing, eating out, housing payments, transportation expenses, child care, and other loan payments – can wreak havoc on your cash situation if you don’t consciously put a lid on them. Limiting this to 50% will give you more room to buy what you want and to build up your savings.
Don’t use your retirement fund or home equity to pay off credit card debts. While lenders often suggest this as a way to solve debt problems, doing so will drain your home equity which you could use for unexpected emergencies such as a job loss, and incur taxes and penalties for premature withdrawals from your retirement fund.
The key here is to live within your means. Achieving your good credit score meant cutting down on unnecessary expenses and now that you’ve got to the point where you want to be, as long as you’re careful not to overdo the spending you can maintain your good credit score easily.
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