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January 30, 2014

Managing Your Credit Wisely

If you want to purchase a large asset, such as a new vehicle, you must have a good credit history to finance the item. Most people do not have the liquid cash necessary to buy a $20,000 to $30,000 car. Financing is crucial to driving that car off the lot, but managing your credit poorly hinders your success. High interest rates and financing rejections are real threats to your investment. Follow a few key steps to keep your credit healthy and ready for evaluation during a car purchase.

Be On Time

Your credit history can be pages long if you have numerous late payment reports. To manage your credit wisely, always pay the minimum amount necessary to keep your account current. Late payments cause interest rates to rise, with potential late fees tacked onto the account. Auto financing professionals see these late payments as habitual, translating to late payments on a car as well.

Avoid Applying For Multiple Cards

Every time you apply for a new credit card, it is reflected on your credit history. Only keep two to three cards active, while trying to avoid new offers in the mail. When you apply for a car loan, for example, the finance officer sees the multiple applications, reflecting a need for excessive money amounts. This practice does not reflect well on your history, giving the financing department a reason to not qualify you for a loan.

Keep Balances Low

In a perfect world, all of your credit cards should be paid off each month to avoid interest rates. However, most people have some form of debt on their cards. Your credit history is not negatively affected by credit card balances unless the amount is close to the card’s limit. At that point, your credit score dips down. Keep a wide space between the amount you owe and your limit to retain good financing for a car.

Pay High Interest First

To increase your chances of a better auto financing deal, strategically pay off your credit cards by starting with the high interest one first. Add a little more to the minimum payment each month until the high interest card has no balance. Take your next high interest card, and pay more toward its balance. With less interest to pay off, your balances are not out of control. Auto finance professionals also note this strategy, giving you points for being responsible debtors.

Balance Transfers Are Not Solutions

Transferring some of your credit card debt to another card with a low interest rate is tempting. However, transfers often require a standard fee, based on the amount transferred. Generally, balance transfers are not a smart solution to pay off debt. The fee can be as high as several hundred dollars, effectively increasing your debt just with the transfer. Keep your balances in their original account, and pay them off as quickly as you can.

Managing your credit also requires attention to spending habits. Be aware of your wants and needs. Do not charge frivolous items that can eventually hurt your chances of a reasonable auto financing deal. You want a fair price on a car, and financing, to keep your family on the move.

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