Make Your Credit Work for You

FEB 18, 2015

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Tools such as retirement calculators and budgeting spreadsheets can help you to organize your finances and plan for future goals. Another resource that can help guide the way to financial freedom is your credit report, which contains a running list of your accounts, balances and payment history. Additionally, that information is weighted to calculate your credit score, which in large part dictates your future access to financing.

Review Your Balances

Obtain a copy of your credit report and review your account balances, including your mortgage, student, auto loans and credit card debt. Once you know where you stand with regards to your debt, establish a budget and repayment strategy including a timeline. Credit monitoring, which keeps you in-tune with changing balances and account information, can help you track your progress.

How Much Credit Card Debt Do You Carry?

Lenders review your credit report to gauge how heavily you are relying on credit cards, and tend to look more favorably on those who use it sparingly. Look at your credit report to calculate your credit utilization ratio your credit card balances versus your available limits. For example, if you have one credit card listed on your report with a balance of $500 and a total credit limit of $1,000, your utilization ratio would be 50 percent. If your balance exceeds 30 percent of your available credit, you may be overextending your finances and jeopardizing your credit score in the process. Be honest with yourself about your spending, and make changes to your monthly budget if necessary.

Where Can You Make Improvements?

Overall, checking your credit report should be viewed as a way to optimize your credit standing so that you receive the most affordable financing. Your report can tell you a lot about your own spending and credit behavior, hopefully prompting you to make changes that will be advantageous to your credit score. Keep track of any negative information, knowing your current credit standing give you a baseline from which to measure your progress.