Consumer Credit basics

A good credit history is a very important aspect of financial health. It enables you to quickly get the credit you need at the best possible interest rates. Obtaining a good interest rate can save you a lot of money when shopping for a car, home, small business or other major purchase. Having good credit also gives you greater options in choosing a loan, especially on the Internet where lenders compete for the business of credit consumers. A good credit history can even help you get a job. Employers have learned that people who meet their financial obligations are more likely to be responsible and dependable employees. Simply put, good credit can make much of your personal and professional life easier.

When you obtain credit or a loan, the lender continually reports your repayment history, usually to all three of the nation's major credit bureaus (one of which is Experian). This repayment history forms the core of your credit report, and is what lenders analyze when deciding whether or not to extend you new credit. Credit bureaus only store your repayment history - they take no part in granting credit. That's up to the lenders.

The most important rule for maintaining good credit is to pay your bills on time! Your success at establishing good credit depends on making smart decisions about the type and amount of credit you use, as well as managing your debt so it doesn't get out of hand. It is not only important to pay on time, it is also wise to be sure you can afford to make the payments to pay off the debt. In the case of a credit card, it is smart to go easy with your purchases so you can keep the total amount owed within a reasonable range, even if your limit is much higher. Keeping a lid on spending helps prevent your debt from accruing to an amount you find difficult to manage or cause you to pay more interest than is necessary.

A general rule of thumb is to spend no more than a third of your income on all debt, including mortgages, credit cards and consumer loans. Try to use credit cards only for purchases that have long-term value, such as furniture, medical care, or emergency repairs. Many people find themselves overextended when they use credit cards for treats like dining out or entertainment. Poorly managed credit can take you deeply into debt and can lead to missed payments and a damaged credit rating.

If you use credit responsibly, you will have the added flexibility and security of credit at your disposal. You will be able to improve your lifestyle through purchases that are usually only possible with credit (like buying a home), utilize services that are sometimes only available if you have a credit card (like renting a car), and have the peace of mind to cover unexpected emergencies.

If you abuse your credit, you may have to pay much more for credit in the future, or you may be unable to purchase the goods and services you want and need.