Just published, the July issue of Consumers Reports has a three-page article called The New Rules of Using Credit (on the front cover) and The New Credit Crunch (on the inside). Either way, it offers nine tips (some obvious, others easier said than done) on what to do and not do. Here, minus all the details, are their suggestions:
1. Clean up your credit score. Aim to raise your FICO score to at least 720—or better yet, 740—to qualify for the best credit-card terms and the lowest rates on home loans and insurance.
2. Keep your score blemish-free. Pay bills on time, don’t close your oldest accounts, and avoid opening new accounts.
3. Build a cash cushion. Have three to six months of living expenses in an emergency fund.
4. Pay off your credit cards. Interest rates are increasing on many cards, so first pay off the card(s) with the highest rate.
5. Rethink how you use credit. “Credit card companies,” CR notes, “have raised interest rates and slashed credit limits for people who work in industries hard hit by the economic crisis or live in regions with declining home values. Don’t use credit cards for small transactions that you used to pay with cash or check.”
6. Don’t tap your home equity. Home equity loans and lines of credit are tougher to get, credit lines are being lowered or frozen, and the interest rate has gone up.
7. Make a bigger down payment—at least 20%—on a car or home.
8. Cap your debt. Payment obligations should not exceed 40% of your income. 9. Try to bulletproof your job. Make connections via professional organizations and social networking sites such as Linkedin and Facebook. Keep your skills sharp or develop new ones.
The July issue of Consumer Reports also has tips on using a debit card to help your kids manage money, dealing with financial advisers and brokers, buying an annuity, and budgeting via computer.
CR on the New Credit Crunch
Monday, June 8, 2009
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