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Credit Knowledge: A Long, Hard, Struggle

Simple tips to get you on the right path

Fixing your credit or understanding your credit is by no means an easy or instantaneous venture. You can expect lots of paperwork, phone calls, and aneurysm-inducing research. But if you're serious about building a strong financial base, it's well worth it.

Here are a series of simple tips to get you on the right path:

Pay your bills on time, every time, and each month. Simple, right? Yet it becomes horribly easy to let bills slide. No one wants to put money away for utilities when they want to buy CD's, DVD's, new clothes, etc. But all of that can wait. Take care of your responsibilities first, and you'll find the luxuries are that much more satisfying.

Have a credit card or two, but not too many -- and don't use them frivolously. As we move ever closer to a paperless electronic society, establishing and maintaining credit becomes all the more important. At the same time, the more you have, the more it looks like you're a "plastic junkie". Don't spread debts or bills along too many credit cards, and don't apply for too many cards too quickly.

Pay your balances on time, every time, or pay as much of the balance as you can. See above. If you can't pay the full balance each month, let some of the balance ride until the next month, and save as much as you can so you can pay it in 30 days.

Cancel old cards you're not using. This is a controversial choice, as the opinion is split down the middle on whether this helps or hurts. Generally, creditors and lenders will look unfavorably on consumers who close all their old or unused cards, as that means they have no available credit lines open. Consumer organizations and credit monitors, however, recommend you close your old cards, as too many open cards with no balances also drags down your overall rating, and leaves you open to identity theft. (See how amazingly incomprehensible this all is?)

Shop for the right card. Don't fall for the hordes of junk-mail card offers you get every day. Go to every bank's Web site, read their literature, do side-by-side comparisons, and gauge what you need for your lifestyle. If keeping the bills paid is the priority, choose a card that doesn't impose too many fees. If you want free stuff or benefits, look for a card that offers discounts with selected retailers. Always, always read every bit of fine print that comes with every card offer. If there's something in the agreement you don't support, just drop it and move on to the next one. The right card is out there, but you have to work for it.

Know your rights as a consumer. There are hundreds of books and Web sites out there devoted to teaching you all you need to know about credit, how to use it, and how it affects you. I never could have learned all I know without doing exhaustive research. Study the Fair Credit Reporting Act from top to bottom. Visit and contact financial planners, consumer agencies, and the like. You can do this yourself, and you don't need "credit repair agencies" to do it for you. The informed buyer is the bane of all merchants, it is said, and if you can afford to shop, you can afford to shop smarter.

Change your spending habits. This is the most important tip of all, thus I've saved it for last.

Evaluate everything you spend money on in a given month. Put aside what you budget for food, clothes, travel, rent or mortgage, etc. Make up a regular chart of what you earn, what you save, and what you have, and compare it to what you actually purchase.

Ask yourself if you really needed the deluxe edition of the "Ultimate Matrix" collection with the Neo bust statue, or if you could've saved a few bucks by getting the regular version. Did you have to pay extra for immediate shipping, or could you have waited a few days and gotten free shipping? Most importantly, was there anything so pressing about your shopping that you had to have it right then and there, thus requiring you to use a card?

Perhaps by now you are feeling powerless and outgunned. Don't.

Credit can be an amazing tool and a very useful asset to our everyday lives, but only if it's properly managed and carefully understood. Americans are financially ignorant because it benefits the consumer system -- when you make mistakes, others profit.

Basic financial education is a necessity in order to understand how seemingly random incidents can add up to cause you woes for years to come. The only way to beat that is with time, patience, and informed decisions. Consider it a credit to yourself -- a way to make the "plastic prison" of credit into a comfortable and secure place to settle down.

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