PART 2 OF 3: Published June 16, 1997		The first part of this series was about applying for credit and what to watch for in the fine print. For this installment, let's assume you have credit — possibly more than you know what to do with. What now? By applying for credit, you have started a credit record. This file will be used by banks, finance companies, realtors, and other total strangers to pass judgment on you for your entire life. Don't let this scare you. If you can keep the electric company from shutting off your power, you can manage to maintain a clean credit record. Then, when you need to access large amounts of credit (a car loan, a mortgage, a home equity loan), your chances of success are much better. The first principle to remember is always to make the minimum payment each month. This seems like an obvious rule, but it's very easy to mislay bills or rationalize that other bills have priority. If you skip paying the phone bill, you can always get your phone reconnected. A blot on your credit record is much harder to erase. Second, be aware of your credit limit and don't exceed it. If you are a good customer, your limit may be raised automatically, or you can request an increase. If you do nothing but these two things (make the minimum payment each month, and never charge over your limit), you will never default on a loan, and therefore you will never be regarded as a bad credit risk. The card companies have nothing to complain about if you are timely customer, even if you carry a high balance from month to month. In fact, they hope that you'll do just that, because then they make a lot of money off you in interest.
Do you have Credit Smarts? Join in our interactive credit card poll — and see how you stack up against other Tripod members!		This last point is the reason you should, when possible, pay more than the minimum payment. Consider the following examples: You have a balance of $2000 on a card that charges a 16% APR. The minimum payment each month is $40. If you don't make any more charges (a big if) and make only the minimum payment each month, it will still take you an astonishing 81 months to pay off the balance! That's because each payment you make has to take care of the interest you've accrued before gnawing away at the principal. Of course, if you continue to use the card (which is exactly what the card issuer hopes you'll do), there is a probability that you will literally never pay the balance in full. If you have the same balance of $2000 on a card with the same 16% interest rate, but you pay $80 per month, it doesn't cut in half the time needed to pay the balance off. It more than halves it, to 30 months. If you have the same $2000 balance on a card that charges a 7.9% APR, and make a minimum payment of $40 per month, it takes 61 months to pay off the balance in full. Pretty clearly, making twice the minimum payment saves you more than halving your APR — but getting a lower interest rate is often easier to do, thanks to card companies' willingness to transfer balances for people with good credit. Before transferring a balance, be sure to ask your card issuer about specific rules that may apply to balance transfers (remember, read the fine print); on some cards, they are treated as cash advances, which may have a different APR. One more example: You have that $2000 balance on a high-APR credit card, 16% or more. You get an offer from another card with a lower APR, say 7.9%, to transfer balances. The teaser rate expires in six months, and then your new card will go back up to an APR of 16%. You'll save money in the short term, of course, because you'll be paying 0.66% of your balance per month (7.9% divided by 12) instead of 1.03% per month (16.9% divided by 12) in interest.
WEB RESOURCES: Bank Rate Monitor has the most current list of best credit card rates nationally and in major cities. Hit the Credit Card button on the home page. One nice feature: you can find a list of best credit cards for balance-payer-offers or balance-carriers. Directory of Electronic Applications: A listing of a number of on-line applications for everything from credit cards and loans to colleges. Get Smart: An impartial comparison of hundreds of credit cards — find the one that's right for you!		If you make plans to pay off or pay down the balance within the six months, you're even better off, since your balance will be lower (or zero) by the time the rate goes back up. Be realistic — don't plan to make monthly payments of $400 if you can't then pay your rent. But if you're expecting a tax refund or planning to sell your car, for example, you can count on making a few large payments that will really eat away at that balance. Finally, Know Thyself. If you can't keep your various credit cards and their balances, due dates, and fees straight — simplify! One way to do this is to transfer balances, but you can do other things. If you can't keep your due dates straight, make yourself a rule that all bills need to be paid by the first of the month, or some other memorable date. Many banks now allow a monthly electronic deduction from your account to the credit card company. This requires, of course, that you always have enough in your bank account to accommodate the automatic deduction, and that you remember to record it each time. But it can be a nice convenience, and you'll never be late with a payment. Don't forget: the fine print is still important. Read carefully any time a card issuer sends you a notice of a change in terms (they're required to do this at least 30 days in advance of implementing the change, to give you a chance to decline by closing your account). If a change will affect the fees you pay, or the way your balance is calculated, don't discount the impact that could have on your finances. applying for cards | managing credit | credit problems Wendy J. Cholbi is a writer who lives with her husband, a philosopher, in Charlottesville, VA. Although lacking a comprehensive business wardrobe, she is the editor of three financial publications (Monthly Market Report, Bank Investor, and Strategic Adviser) for SNL Securities. Read more columns by finance expert Wendy J. Cholbi. © 1997 Tripod, Inc. All Rights Reserved.