Your Guide to Personal Finance

If you cannot interpret your annual credit report, or have trouble with other aspects of your wallet, you might need a guide to personal finance. Whether you are just starting to build up your credit history or trying to raise your score, it can feel impossible to understand all the fine print and technical definitions involved. Will a low interest credit card meet your needs, or should you get a rewards card instead? How many credit cards is too many? When would a personal loan be appropriate to take out? 

Understanding the basics of finance and credit allows you to take control of your own financial situation. Rather than signing up for a random rewards credit card and using it fearfully, you can find the products that work to your benefit. Then you can be confident about the contents of your credit report and your financial status. Below you can find information on the basics of setting a budget, reviewing your credit report, credit utilization and managing your debt. 

How to Balance Your Budget

To control your personal finances, it helps to begin by reigning in your spending. Set a monthly budget to control what goes to bills, what goes to savings and what goes to additional purchases. You can do this by hand, on a spreadsheet or with an app. A budgeting app like You Need a Budget or Mint can help you decide how to divide your income up. By planning out your budget ahead of time, you can avoid accidentally over-drafting your account or dipping into your savings after an expensive shopping trip. 

If you have trouble controlling your spending, you may consider researching how to take out a personal loan to pay immediate bills. Payday loans exist to fill that need. However, such loans come with hefty interest rates that can add up fast. You can avoid interest rates and loans entirely by restricting your spending in the first place. 

This requires you to plan your purchases in advance to control your daily spending. Unplanned spending can have a significant impact on your finances. Meanwhile, having a plan for your money ensures you are using it efficiently. If your budget is tight, you can look for sales, discounts and coupons whenever possible for food, clothing and entertainment. You can also find coupon websites listing both grocery store and manufacturer’s coupons to help lower your spending. 

Look for opportunities for rebates and cashbacks, such as by using the Chase Amazon credit card for Amazon purchases. By making a habit of searching for coupons and cashback opportunities before you go shopping, you encourage yourself to think twice about a purchase. If you do choose to make a purchase, taking the time to find a sale or good deal will keep more money in your pocket. 

How to Protect Your Credit Score

You should check your annual credit report regularly to ensure that there are no signs of fraud or unexpected dings on your report. When a financial institution considers lending to you, it pulls your credit report to evaluate what kind of borrower you are. You may be offered unfavorable terms if your history indicates that you:

  • Accumulate debt without paying it off.
  • Default on your loans.
  • Miss payments.

You are entitled to three free credit reports each year, one from each of the major credit bureaus: Equifax, Experian and TransUnion. You can receive all three at once to compare the different reports against one another, since the three bureaus use different information to create their reports. Alternatively, you can stagger them throughout the year to monitor your report more generally for activity or signs of fraud. 

Generally, the best way to improve your credit score is to responsibly balance a variety of accounts without falling behind or missing payments. Credit bureaus like to see you hold different kinds of accounts — for instance, credit cards as well as car loans or mortgages. 

Learn How to Manage Credit Cards Responsibly

For most people, managing personal finances means learning how to responsibly use credit cards every day. If you do not already have a good low APR credit card, it may be time to get one. Overall, there is no magic right number of credit cards to have. However, the more credit you have and do not use, the better your credit score will be. Your credit utilization percentage typically plays a major role in determining your credit score — the value makes up about 30 percent of your credit score. 

Your credit utilization ratio is how much of your available credit you are using. For instance, if you have three credit cards and each has a $5,000 maximum, you have $15,000 in available credit. If you have $700 in credit card debt, you are using 4.67 percent of your total available credit. That’s an excellent credit utilization ratio — anything below 30 percent of your total credit is considered good. 

If you have a lot of credit card debt, you can also look into balance transfer credit cards. These cards are designed to consolidate credit card debt. They typically offer a low introductory APR period where you can pay off the debt while acquiring little or no interest. By making regular payments and paying down your debt, you can show lenders you are responsible and begin improving your credit score. 

Keep in mind that opening too many credit cards at once will have a negative impact on your credit score. This is because to lenders, it appears that you are seeking a large amount of cash, which could indicate financial instability. Instead, you should open accounts over time, with at least six months to a year between applications. 

It’s important to never open more cards than you can handle, and always keep an eye on all your accounts. Credit card accounts that remain inactive for too long will be closed, which can hurt your credit score. This is because it lowers the amount of unused credit available, ultimately lowering your credit utilization score. It is better to use all your cards occasionally and pay purchases off in full after use than to use one card and let others close.