As new graduates embark into the world of independent living, most are ill prepared to deal with their own finances. It’s a shame that “Money Handling” isn’t a required course in all High Schools and Colleges, because starting off on the right foot can lead to a much more pleasant life than starting off wrong.

When you have a good credit score, lenders see you as a low-risk person. As a result, they’ll offer you lower interest rates, lower minimum payments, less paperwork, and more borrowing options. Poor scores have the opposite effect.

In fact, with a bad credit score you could be denied jobs, car loans, mortgage loans, insurance, or even rental housing. If you can get insurance, with a poor credit score you’re apt to pay rates that run more than twice as high as they would be if your score was good. And if you can get loans, you’ll pay 4 or 5 times as much interest as you would with a good score.

Creating a good financial reputation (credit score) isn’t difficult, but it does require a little discipline. And it does take time, so start early. The longer your record of responsible money management, the easier your life will be.

This means saying “no” to most of the credit card offers that come your way, and working hard never to use over 50% of the credit available to you. It also means paying each of those bills by the due date, and paying a bit more than the minimum payment. Strive to keep your non-mortgage debt down to 15% of your income, even when it means delaying the purchase of a new toy or a classy addition to your wardrobe.

One good way to make sure you pay your bills on time every time is to create a chart that shows each bill and the date it’s due. One caution: don’t assume that the due dates will be the same each month. Read each bill when it comes in and adjust the payment date accordingly.

Budget your payments and adjust your discretionary spending accordingly – so that you’re never in a position to make a late payment. Even if that means skipping Saturday night out.

Next, begin to build your net worth. Check in to automatic savings, deducted from your paycheck before you even see it. Small amounts add up, and they will raise your credit score. In fact, having both a checking and a savings account will earn you a score 4 times higher in that category than having a checking account alone.

If automatic savings aren’t available, discipline yourself to make that deposit from each and every check.

Lastly, be sure to check your credit score often – so if there’s a mistake you can get it corrected quickly!

This entry was posted on Saturday, July 19th, 2008 at 6:15 pm and is filed under credit cards, free credit score reports. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.