Wrong!

It may be quite tempting to just give up on your credit, especially if you feel your debts are simply too overwhelming to handle anymore. However, giving up on your credit is never the right decision to make, and here’s why:

• Judgments – Although creditors of unsecured loans such as credit cards and personal loans cannot take away your home, for example, they can take you to court where a judgment against you can be made by a judge. If a creditor wins a judgment against you in court, the court can begin to garnish your wages. Instead, it is best to call your creditor and set up a realistic repayment plan so you can stay on good terms with them. Ignoring the problem will not make it go away; it will simply delay the inevitable.
• Other credit – Your poor credit history can affect you years into the future. In other word, an abandoned credit card today can affect your ability to obtain a home or car loan years down the line. You may have forgotten about your past credit mistakes, but I guarantee you creditors and credit reporting agencies have not.
• Jobs – The job market is tight, and employers are increasingly looking further into their employees’ habits. As a result, it has become more common for employers to look at the credit scores and reports of potential employees. The reason is quite simple: some employers may find a direct correlation between a potential employee’s responsibility and their credit score. A low credit score may raise a red flag with an employer, thereby preventing you from getting that job of your dreams.

If you feel like your credit cards and other loans are simply too much to handle it is best to contact your creditors directly and talk to them about your financial struggles. Most creditors will be willing to work out a more affordable payment plan with you, so it always pays to ask.

• Library fines – Some libraries will send your overdue fines to the credit reporting agencies. Surprised? Because these types of fines are most commonly ignored or forgotten, municipalities have gotten smart and started reporting individuals to the credit reporting agencies.
• Parking/speeding fines – Municipalities are also getting into the game when it comes to parking and speeding tickets. In fact, it is becoming quite common for municipalities to report these unpaid fines directly to the credit bureaus. As a result, many individuals take these fines much more seriously.
• Cell phone bills – Although the regularity at which cell phone companies report missed payments to the credit agencies depends on the service provider, it is true that many cell phone providers have begun forwarding this type of information onto the credit reporting bureaus. Many cell phone providers report unpaid cell phone payments as credit accounts, thereby immediately affecting your credit score.
• Child support – The Fair Credit Reporting Act treats child support like any other type of debt. As a result, courts furnish child support payments – whether on time or delinquent – to the credit reporting agencies. However, it is important to note that, although child support payments are recorded on credit reports, they do not affect an individual’s FICO score. Keep in mind, though, that an employer may look down upon someone who shows delinquent child support payments on their credit report.
• Utility payments – If you fail to pay your electric bill or your water bill, expect the company to furnish this information to the credit reporting agencies. Although a missed payment or two will not likely get reported, if you are consistently past due, you may find this information on your credit report. In short, it is important to treat all bills – not just loans and credit cards – equally because they may all play an important role on your FICO score.

Well, unfortunately, the answer is not that simple. For starters, credit card spending is a problem for just a small percentage of the population. If you have difficulty controlling reckless spending then a credit card probably isn’t right for you. However, for the rest of us, credit cards serve an important purpose and, let’s face it: they can provide us with an incredible amount of convenience and financial flexibility. Here’s why:

1. Credit cards make a bulk of our credit report – Credit cards are the easiest way to establish a long credit history. They are often the way to build our credit scores so we can be approved for cars, homes and other large items. If we eliminate credit cards from our lives, our credit scores may take a hit. Responsibly using and paying on a credit card throughout the year is one of the most effective ways to build an impressive credit score.
2. Credit cards provide us with convenience and practicality – Credit cards allow us to spend with a grace period. They allow us to spend now and pay later, making budgeting much easier. They allow us to cover emergency expenses and cover unexpected expenses. In short, a credit card, for many people, is like a financial security blanket.
3. Credit cards have an advantage over cash – Credit cards can do much more than cash. They can help us track our expenses; they can help us budget; they can help us run our business; they can provide us with protection against theft; and they can offer us many features, such as travel insurance and rental insurance. They eliminate the need to use cash when traveling, and they are accepted virtually anywhere. Renting a car, purchasing airline tickets and booking a hotel can be done quickly and easily with a credit card.

With that said, this is not the time to begin making financial mistakes, as they will likely haunt you for many years to come. Here is our list of the most common misconceptions college grads have about money so you won’t make the same mistakes:

• “I’m staying away from credit cards because they spell trouble” – One of the worst things you can do is avoid credit as a college graduate because your key to a positive financial future is establishing a strong credit history. In other words, the only way to build a strong credit history (and therefore a strong credit score) is to use credit. When used responsibly, a credit card or two can be your ticket to a great financial future.
• “My student loan obligations aren’t a priority” – Student loans, or should I say the failure to pay student loans, are one of the biggest mistakes college grads make, and are one of the biggest reasons college grads find their credit scores in the tank. In short, failure to make payments on your student loans will result in a huge dip in your credit score. Pay your student loans on time, every month, and if your inability to land a job following graduation leaves you financially unable to pay on those loans, immediately contact the loan provider and ask to defer the loan.
• “I don’t need to worry about retirement now.” – Although it may seem like retirement is worlds away, if you begin building your retirement savings now, you will be financially secure by the time retirement age rolls around. Plus, if you begin saving in your twenties, the sheer length of time your money has to grow will result in a substantially larger retirement nest egg than starting in your thirties or forties.

• Compare a number of student credit cards before deciding on which one to apply. It is important to remember that, like any other type of credit card, the interest rates on student credit cards can vary greatly.
• In general, you should not need to pay an annual fee for a student credit card.
• Don’t apply for a student credit card until you have carefully read the terms and conditions associated with the card. If you don’t understand something, call the company and ask questions, as the worst decision you can make regarding a student credit card is applying for a card you don’t thoroughly understand.
• Consider opening a checking account before applying for a student credit card. This will allow you to begin building a credit history and will become an easy way to pay your monthly bill. If you have a bank account with a credit union, you will likely be able to apply for a credit card through your credit union, as well.
• Start your search for student credit cards online. There are so many great websites that feature and compare the latest student credit cards, which will allow you to compare the cards’ features, side by side.
• If you don’t have a steady job throughout college, you will likely need to get a parent to co-sign for the credit card. The federal CARD Act has changed the rules when it comes to student credit cards, so you may need the help of your parents to get your first student credit card.
• Make a commitment to always pay off your credit card each month. Now is not the time to carry a credit card balance and create bad credit card habits that will haunt you well beyond your college years. Charge only what you can afford to pay off each month and begin establishing a strong credit score that will help you do everything from purchase your first car to rent your first apartment.

Unfortunately, not all marriages end peacefully and, a result, not all credit scores are kept intact. If you have made it through to the other side of a divorce, but are financially wrecked as a result, you will need to begin making moves to repair your credit so you can move on. Here’s what you need to do:

• Any joint credit cards should be immediately canceled – Although any outstanding credit card debt will still be half of your responsibility, you can cut off any future debt at its knees by removing your name from all joint accounts.
• If you are a woman who relied on your husband’s credit over the years, it is now your time to begin building your own credit history – The best first step is to take out a credit card in your name. If you don’t have enough of a credit history to do this, take out a secured credit card. Secured credit cards are ideal for individuals with no credit or poor credit, and they are a great way to begin building a positive credit history.
• Open a bank account in your own name – A great place to open a personal bank account is through a credit union, as it will allow you to not only begin establishing a credit history, it may also serve as your lender if you need a car loan or credit card. In fact, a credit union is often the best place to go if you need to apply for a credit card.
• If you have a loved one who is willing to help you, ask them to “piggy back” you onto their credit – In other words, you may consider asking a loved one to co-sign for a credit card or loan or allow you to become an authorized user on their credit card. Although this situation is not for everyone, it can be a great way to rebuild your credit and begin your new life.

Here’s what you need to do to begin your journey to a strong credit score:

• Order a copy of your credit report from all three major credit reporting agencies. Although you may think your credit report will be virtually blank, mistakes do happen and it’s possible that there are errors on your credit report. You are entitled to a free copy of your credit report from the credit reporting agencies once a year so take advantage of this opportunity and order them today!
• Once you have checked your credit report, you must open a checking or savings account. Lenders of any kind like to see an active bank account, as it shows financial stability. Plus, it provides you with a means to pay on monthly bills and debts.
• Understand the factors that credit reporting agencies take into consideration when determining your credit score. Understanding that your credit score is made up of a number of factors, including payment history, payments and the ratio of debt to income, will better help you build your credit score.
• Start with a secured credit card to begin building your credit history. Secured credit cards are essentially credit cards that are secured with a cash deposit. Once you have established a history of regular payments with a secured credit card you can likely apply for – and be approved for – an unsecured credit card.
• Don’t think just in terms of credit cards when considering your credit score. In fact, lenders and credit reporting agencies look at your payment history on other types of monthly bills, including student loans and utilities, just to name a few. In other words, be responsible when paying any type of monthly bill or debt, as it could reflect poorly on your credit score if you don’t.

Here’s how to get started:

• Aim for the 30 percent mark when it comes to saving. If you start saving early, you will be ahead of the game when it comes to purchasing our first home, building an emergency fund to prevent a financial catastrophe and saving for retirement. Aim for 30 percent now so it will become second nature to put 30 percent aside in an interest-bearing account.
• Spend money for your future, not your whims. Instead of spending on whims such as vacations and clothing, think in terms of your future income. There are a few debts that are almost always worth taking on, and student debt is one of them. Spend the money to get educated doing what you want to do and it will most certainly pay off in the form of future earnings.
• Don’t wait to begin saving. Although we can all think of other things to spend our 30 percent on, the truth is that it is always best to start saving early. The beauty of compound interest is best played out when you start saving early in your adulthood.
• Get a credit card when your income allows and start building your credit history. A credit card can be dangerous in the hands of someone not skilled in the importance of credit, but it can also be a very powerful tool for building a strong credit score and therefore being prepared to take out larger loans, such as car loans and mortgages.
• Make the process of paying bills a priority in your life. Before nights out, new cars and last-minute vacations, make it a priority to always take care of your financial obligations, even seemingly insignificant ones. Remember: Electric bills, cell phone bills and credit card bills are just as important to your credit as your rent payment each month!

Well, that’s right most of the time. However, like most financial cases, this does not always hold true.

In particular, take note if you have a Visa Signature, World MasterCard or American Express credit card. These credit cards are generally reserved for those with high incomes and excellent credit and therefore come with the NPSL feature, which stands for No Preset Spending Limit.

You may think that if your credit card comes with the NPSL that you are free to charge as pleased, with no implications. However, your spending may very well be limited – unbeknownst to you.

What are NPSL Credit Cards?

NPSL credit cards generally come in two varieties: NPSL credit cards, which allow you to spend a certain, undisclosed amount, but require you to pay off your balance each month; and NPSL credit-hybrid cards that feature a revolving line of credit that allow you to exceed your limit, provided you pay any amount over your credit limit in full each month.

What many individuals fail to realize that many of these NPSL cards do come with a spending cap and, if your reach that amount (which may be unknown to you), your card will be declined. So, instead of enjoying the benefits of having no preset spending limit, you may be fooled into thinking your card will never be declined – only, of course, to have it declined, which can be incredibly inconvenient and embarrassing.

Detrimental to your Credit Score?

In addition, the way NPSL cards are reported to the three credit reporting agencies may be downright detrimental to your credit score. This is because one of the factors considered when determining your debt-to-income ratio is your credit utilization. If the credit limit is unknown by everyone except for the credit card company, including the credit reporting agencies, your credit utilization cannot be accurately calculated, thereby possibly lowering your credit score.

In short, it may be best to stick to a competitive, low-interest-rate credit card and avoid NPSL credit cards if you are concerned about your credit score.

It may be time to call it quits with your credit card if:

• Your interest rate continues to climb, regardless of your solid credit history. If you have proven yourself to be a loyal customer and have always paid your bills on time, yet your creditor doesn’t seem to recognize this, you may consider finding another card that better suits your excellent credit history and solid spending habits. However, if you’re not ready to call it quits just yet, try calling your creditor and requesting a decrease in your interest rate. Often times, creditors will accommodate your request if you have a solid history to back it up.
• Your rewards don’t fit with your lifestyle. If you are working hard to earn rewards, only to have a pocketful of rewards that don’t really mesh with your lifestyle or spending habits, it may be time to find another credit card with rewards that are better suited to you. What’s great about today’s rewards credit cards is that there are plenty from which to choose, so it’s quite easy to find a rewards card that rewards you for things that are of interest to you.
• Your credit card’s terms and conditions are as long as the last novel you read. The CARD Act has provided consumers with plenty of transparency regarding their credit cards. However, it has also resulted in exhaustively long terms and conditions that are as easy to read as twelfth grade algebra. Plus, you may be facing new changes to your account nearly every month, thereby requiring you to read and reread changes in order to stay abreast of your card’s terms. You may therefore choose another card with more straightforward terms and conditions. It is often best to avoid rewards programs and cash back programs in this case and opt instead for a competitive, fixed-interest-rate credit card.