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5 credit rules everyone should follow

Keeping your finances and your credit score healthy requires discipline. Here are 5 guidelines to help you stay on track.

By MSN Money Partner Jun 28, 2012 1:30PM

This post comes from Jeanine Skowronski at partner site


Managing credit correctly requires a certain amount of discipline. If you let your spending get out of control or take on too many loans, you could face big money trouble.


Image: Man with magnifying-glass (© Jupiterimages/Jupiterimages)That's why, when it comes to borrowing, it's important to have some guidelines. Here are five rules all consumers should follow so their finances and their credit score remain intact.


1. Make payments on time

Stellar payment histories are key when it comes to establishing a good credit score. They account for the largest percentage of all components used to calculate most credit scoring models, and one missed bill will certainly cost you. As this FICO study illustrates, a recent late payment can cause as much as a 90-110 point drop on a FICO score of 780 or higher.


Missed bills can also do big damage to your wallet, because balances are typically subject to penalty annual percentage rates and late payment fees.


To avoid both pitfalls, it's a good idea to set up autopay on car, student or home loans so you don't miss a payment. In terms of credit cards, while it's always a good idea to pay off everything you owe, make sure at least minimum payments are made before the monthly bill's due date.


Additionally, "if you have problems paying bills on time, don't get a credit card," says Karen Carlson, the director of education for nonprofit agency InCharge Debt Solutions.


2. Don't bump against your credit limit.

Following payment history, credit utilization ratios -- essentially how much credit you have available to you versus how much you are actually using -- play a big role in shaping credit profiles.


To keep scores from taking a dive, it's important to avoid bumping up against credit limits. Instead, try to utilize 25% or less of all your available credit at any given time, says Deatra Riley, a financial education manager for nonprofit credit counseling organization CredAbility.


And don't let anyone fool you into thinking you need to carry balances to give your score a boost.


"I have never seen a credit-scoring model award points for that," Carlson says. "It's really about the account being paid as agreed."


3. Always consider your credit score.

Whether adding or subtracting to your credit profile, it's important to consider what effect the move is going to have on your credit score. Of course, to do so, you'll need to know what your credit score actually is. (Post continues below.)

Consumers should check their credit reports at least once a year. You can do this for free by visiting You can also monitor your score for free with's Credit Report Card.


As a best practice, you should also pull your credit report right before applying for a new loan. If the score turns out to be less than stellar, you may want to focus on building it up before you add any credit cards or installment loans. If your credit score is in good shape, be sure to reap the benefits.


"Be creditworthy when the opportunity arises," Carlson says, so you can get the best interest rates on each line of credit. You'll also be eligible to score the best rewards credit cards.


4. Understand the terms and conditions associated with all your loans.

Terms and conditions vary from product to product, so it's important to read through every single loan or credit card contract before you sign on the dotted line.


According to Brent Neiser, senior director at the National Endowment for Financial Education, you should check what interest rates are being offered and when they will be applied. You also want to read through fee structures thoroughly so you have a good sense of the costs associated with each line of credit.


Additionally, ask "What are the incentives?" Neiser says.


If you haven't combed through a contract before accepting a loan, you will need to ultimately make time to read through the fine print. Riley also suggests printing out contracts and keeping them in a "safe, secure place" so they can be easily accessed should you encounter an issue.


5. Charge in accordance with your budget.

A credit card can be a powerful payment method, since it allows you to earn points on purchases and may also get you access to exclusive perks and discounts. But special offers can easily be rendered moot if you don't control your spending and instead end up with a mountain of interest-incurring debt.


To avoid winding up in dire financial straits, Carlson suggests using credit cards in accordance with a written budget.

"This is the (rule) most people don't follow," she says, since it's very easy to think of a credit card as a financial lifeline. However, you need to be sure to only charge items you could pay for even if the line of credit wasn't at your disposal. You also need to make sure this budget contains a savings plan.


"Don't use a credit card as a replacement for your emergency fund," Carlson says. "Credit is a wonderful tool to meet the needs of positive events. It's not a tool for negative events."


More from and MSN Money:

Aug 26, 2012 7:20AM
This has got to be one of the lamest articles so far.
Nov 7, 2012 6:23PM

I have a better idea for students going into college - DON'T BORROW MONEY - from anybody! Don't get a credit card. They are a JOKE. They ruin lives, marriages. Listen to Dave Ramsey before you even think about opening a credit card and "managing your credit wisely" 

Nov 7, 2012 9:13PM
Rule number 1: DO NOT GET A CREDIT CARD.
No other rules.
If you don't have the money don't buy it.
The best credit score is 0.
Get out of your Bank and use a Credit Union.
Aug 26, 2012 12:57PM
Operate only Locally so that they don't get any JUNK; those Big Time National and Worldwide
Companies are associated with some real Crooks.  At the local level you are NOT a Number~!!

Aug 26, 2012 3:01PM
GOD no dont do anything to the banks , but they can do & get away with anything they like & we the people pay for there F%%K UPS!
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