3 Credit Lessons from the Current Economic Crisis
4th October 2008
Governments lead by example, whether they want to or not. Sometimes they give us an example of what not to do. Wall Street execs are also unwitting role-models to millions of people. But mistakes can be made at any level, especially when irresponsible lending and spending are involved.
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To keep your own credit in tip-top shape, pay attention to these costly lessons learned by banks, mortgage lenders, home buyers, and our national government as a whole.
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Lesson #1: Credit isn’t a license to spend.
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Just because you’ve got a lot of available credit doesn’t mean you should race out to spend it all. Lenders have a job to do, and that job doesn’t always have your best interests at heart – as too many home buyers have learned in recent years.
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You must take personal responsibility for your spending. Keep records of your monthly expenses to see where your money goes. Take a hard look at the items you want versus the items you really need. Then decide if you can afford to accept and use the credit that’s been offered to you.
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Lesson #2: Living beyond your means is a bad idea.
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Many people criticize the sub-prime home buyers who got taken for a ride. Didn’t they realize they couldn’t afford those expensive houses? If so, why did they sign up for those mortgages? The answer: from top to bottom, our nation has a culture of “spend now and pay later”. Only, it’s not always easy – or even possible – to pay later.
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This situation requires foresight and honesty. Look ahead before you commit to purchase a big ticket item on credit. How do you expect your financial situation to be in 5 years? In 10? 20? Be brutally honest here. If you’re struggling to stay afloat now, how will you rearrange your income or expenses to allow such a purchase? How is the projected job growth in your industry? Are you hurting your retirement by making this purchase? You need a strong financial plan and the tenacity to stick to it.
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Lesson #3: If you ignore your credit, it will go away.
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Your credit is your financial credibility. Just like our nation is finding it hard to keep borrowing money, you, too will lose your credibility with lenders if you max out your credit cards and open more accounts just to keep on spending.
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Don’t batter your credit score by carrying too much debt. Pay down your credit cards so that your total debt is 25% or less of your total available credit. Stay on top of your payments and call your card company to negotiate if a late payment is unavoidable. It’s much better to be proactive than reactive when your credit score is on the line.
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Credit can be tricky to manage, but the effort is worth it. There’s no bailout plan in the works for the average American card holder. If you dig yourself into a hole of debt, your choices will be limited to bankruptcy, credit counseling, personal loans, or plain old default that will haunt you for years to come. Take a lesson from our current economic crisis and keep your spending in check.
<p><br><br>This article has been provided by Creditor Web. At CreditorWeb.com you can compare over 100 credit cards from multiple banks and apply for <a href="http://www.creditorweb.com/">credit cards</a> online.
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