Credit Cards and Personal Loans

by Carmen Gonzalez

Your credit score says a lot about you and how you handle your money. Financial institutions, insurance agents, utility companies, and others will take a look at this score when deciding if they can trust you with their service. Knowing what factors go into a credit score and how you should manage your debt can help you boost your score and increase your buying power.

Your credit score is determined by revolving debt and installment debt. Revolving debt is an open line of credit that allows you to continuously spend money as you pay off your balance, like a credit card. Installment debt which comes from mortgage loans, car loans, and personal loans. These types of loans have a fixed rate, payment amount, and payment schedule. While your credit score is calculated by using your installment debt and revolving debt, how you manage each is what can boost your score or hurt it.

Credit cards can seem overwhelming if you don’t know what to look for. The first step when deciding to open a credit card is knowing what kind to open. Credit cards from financial institutions will help your credit more than a basic store credit card. You also want to look out for cards that have hidden fees and high interest rates. Who has time for that?! Centric offers great credit card options with no hidden fees that can help boost your credit and let you earn rewards points! Lastly, in order for a credit card to help your credit and not hurt it, you have to use it correctly. Be careful to not spend more than what you can pay off at the end of the month. If you can’t pay it off, don’t let more than 30% of the limit roll over from month-to-month.

You are limited on options when you are wanting to establish revolving debt, but there are a lot of options for you when you are wanting to establish installment debit. If you are not ready to purchase a home or car, you can establish installment debt by getting a personal loan. A personal loan is a loan that is not backed by anything other than a promise that you will pay. Centric offers multiple options for personal installment loans including:

• Signature loans – This is a Cash Loan.
• Share Secured loans – Your loan is based off of how much money you can pledge.
• Credit Builder loans – You are loaned money to pledge.

Once you know what kind of debt you need, you can apply for the loan or credit card. Your creditworthiness will determine what kind of limits and rates you will qualify for. Creditworthiness is more than what your credit score is. It is determined by if you pay your bills on time and don’t have maxed -out credit cards. Your time on your job and debt to income ratio are also taken into consideration when a lender is deciding to give you what you have applied for. Lenders like to see that you have had two or more years on the same job or within the same industry. If you are constantly switching jobs that do not connect with each other, it can be hard to know what your budget will truly be. Also, your debt to income ratio should not be more than 40%. This ratio is calculated by taking what you make in a month divided by what you have to pay out in bills for a month. When this ratio is too high, it can indicate that you will have trouble paying your bills like you should. If you are not sure what your creditworthiness is or want to improve it, you can schedule a free financial wellness check with one of Centric’s on-staff Certified Credit Union Financial Counselors.

At the end of the day, what your budget has room for is the most important factor. There are labels like ‘good debt’ and ‘bad debt,’ but your overall debt is what matters. Good debt is debt that will add value to your life, and bad debt is debt for things that lose value over time. Regardless of your situation, you do not want to overextend yourself. When you overextend yourself and your budget, you run the risk of not being able to pay back what you have borrowed. This can lead to losses, bankruptcy, and a never-ending cycle of needing more money than what you make.

Credit cards and personal loans can help your credit greatly, but you should be careful when making decisions about the right time to get into new debt. Make sure you have a handle on your current debt, before going into more. Research and set up a meeting with a certified financial counselor before making any decisions so you can be confident in your next move. Your credit will play a huge part in where you can go with your financial future, so start taking care of it today!