We’ve looked at the following questions concerning buying a consumable item.

• Should I use Credit to buy the item?
• Have I found the best credit use or buy for the purchase?

Now let’s look at Question #3: How is my credit rating or score?

You often hear it said that it is an advantage to establish credit and build your credit score, but perhaps not as much is said about keeping your credit good. Once you establish credit, you are watched – not only your record of payments, but any reports about your activities from newspapers and other sources. Through national credit bureaus – Equifax, Transunion and Experian your credit rating (score) follows you all over the country and even to some foreign countries.

Keep Your Credit Good!

Protect this valuable property – your credit:

• Make payments promptly, at the agreed time.
• If you are unable to meet a payment, call your creditor or visit him and tell him what you will be able to do.
• Be especially careful to protect property until it is paid for.

Let’s look at Question #2 – Have I found the best credit use or “buy” that I could?

In case you missed Part 1 we looked at the question of – Using credit for this purchase?

Now let’s look at question 2:

The main sources of consumer credit are:

(a) Lending Institutions

• Credit Card Companies – VISA, MasterCard, American Express, Discover
• Credit unions
• Personal loan departments of banks
• Small loan companies
• Sales finance companies that take over credit “paper” from dealers.
• Pawnshops

(b) Retail sales establishments

Department stores, specialty shops, appliance stores, auto sales, for example. Such companies as Sears, JC Penney’s, The Gap, Victoria Secret and many more offer credit as a service.

The charges from these different sources vary a great deal. Take time to investigate. Find out what kind of service you can expect, what the cost and repayment terms will be. Do this before you make a bargain, for once you sign a contract, you’re committed to carry out your part.

Find Out the Dollar Cost. You probably compare prices on shoes, dresses, coats, housewares. Why not on the cost of credit?

Credit costs vary widely among different lenders and among stores that sell on the installment plan. In fact, costs may differ considerably among the various “plans” available from a single store.

It will pay you to take time to get the facts. You need to know more than the down payment and monthly (or weekly) payments — so take time to check your contract. The contract should give you

• (a) how much is to be financed ;
• (b) the amount of each installment payment ; and
• (c) the number of installments.

This is the way you figure cost: Multiply the amount of the monthly payment by the number of payments to be made. From this figure subtract the amount that is to be financed. The difference will be the dollar cost of credit.

EXAMPLE :1

A refrigerator costs $300 and can be paid for by making a $12 down payment and 12 monthly payments of $25.92 each.

Multiply payment amount X number of months to be made ($25.92 x 12) = $311.04

Subtract the amount financed (Cash price minus down payment) $300 – $12 = $288.00

Dollar Cost of Credit $ 23.04*

Total cost when bought on credit ($300 cash price plus $23.04
credit cost) $323.04

Note: The cost of credit equals $8 per $100 per year on unpaid balance of $288. This is equivalent to a simple annual rate of 14.8%.

Now on to Question #3 – How Is My “Credit Score or Rating”?

Buying on credit is so easy to do today. But, before you buy anything your need to ask yourself these 3 questions. They are:

• 1. Shall I use credit for this particular purchase?
• 2. Have I found the best credit “buy” that I could?
• 3. How is my credit rating?

In this 3 part series we’ll look at the questions one-by-one.

Question 1. — Shall I use credit for this purchase?

Before you answer this question, ask yourself and answer – several others:

(a) How will the payments fit into my family’s regular spending? If you haven’t been in the habit of budgeting (planning expenses before you spend), now is the time to start – before you take on installment payments. Will you have to go without necessities or other items that are more important to your family than this purchase? No one else can give you the answer. Sometimes it’s learned the hard way, by living with installment payments that are too big for your income. Sitting down together as a family and figuring all your living expenses ahead of time isn’t easy – but it might save a great deal of real trouble.

(b) How much will credit cost us? What’s the difference between the cash price and the price you’ll pay if you buy “on time”? Is it worth the cost to you to be able to make the purchase now on credit, and pay later? Or would it be better to use savings? Or to wait until you can save enough to pay cash?

(c) Will whatever we are planning to buy outlast the time we’ll be making the payments? Give long service? (It’s no fun to pay for “dead horses” !)

(d) Is this something that we will want as much when we are making the payments as we do now?

(e) Will it mean better family living? (Save time? Save energy? Give satisfaction to the family? Protect health? Make it possible for you to increase income?)

(f) Is our income certain for the length of time that payments will run? And do we have enough life insurance protection to cover the debt?

On to Question 2 – Have I found the best credit use “buy” that I could?

Question: I wanted to know about annual interest rates. Who’s job is it to know the rates. The numbers seem different than what is advertised. My boyfriend recently bought a TV and he just signed the papers and did not really understand the cost or rates. Renee Falls Church, Virgina

Answer: The “True Annual Interest Rate” sometimes called APR is something as a consumer you need to find out before making any purchase on credit. As the use of installment credit (using credit cards and paying minimums) has increased, a great deal of confusion has developed over interest rates. As a result, it has become extremely difficult and sometimes impossible for consumers to compare the cost to him on credit cards, credit from the bank, the credit union, the department store and other sources.

“Truth-in-lending” legislation has been updated many times since it was proposed in 1961 and there have been extensive hearings on the bill. Proponents say that the consumer “has the right to know.” Opponents (some lenders and retail establishments) argue, among other things, that it is impossible to figure accurately what the true annual interest rate would be on installment payments as they are commonly set up. There is some truth in this claim, but the consumer could be given much more exact information about interest rates than he usually is given.

As a consumer it is very important that you get yourself educated on the “True Cost” of borrowing before buying an item.

Managing family credit whatever your reasons, using credit in itself isn’t necessarily good or bad. It’s the way you use it that creates either benefits or problems for you and your family.

You have to manage credit. If you don’t, your debts will manage you and keep you from doing and having many things you really want.

You may not have thought of it in this way, but actually your credit, that is the confidence others have in you which makes it possible for you to borrow money or to buy on time, is indeed a valuable personal asset.

The purpose of the next few articles is to bring together some ideas which may help you use credit to your advantage.

We’re Talking About “Consumer” Credit

We are not talking about the mortgage on your home.

Our concern is only with consumer credit. By this, we mean the kind of credit families use to buy consumer goods and services – cars, flat screen LCD televisions, washing machines, computers, vacations, clothes, college expenses, in general things that are “consumed” (used to provide the kind of living a family wants). Consumer credit is short-term credit – usually within the range of 1 to 36 months.

Its use has exploded over the past 20 years, and buying on credit (using the ease of a credit card) rather than paying cash now seems to be the usual pattern of family money (credit) management Moreover, retail dealers and lending agencies all compete with each other to get more and more of us “on the cuff.”

It’s Your Money

In general, extending credit widely has provided a useful service for families, but it is not a free service. It costs money to buy “on time” or get “instant cash” from a lender. So it is worth your time to compare costs of credit from different sources – just as you compare costs of furniture or automobiles.

There’s another hazard. Credit purchases often are promoted in such a fashion that people may be tempted to buy more than they can afford. One more “small monthly payment” may seem hardly worth thinking about but when all the payments are put together they can add up to trouble. The very characteristic that makes installment credit a convenient means to provide a better living can result in a burden of debt that takes half a man’s pay check or more.

So it pays to ask a few questions before you sign the contract.

Managing credit, debt and the flow of money in a family often goes something like this…

Alice Smith lets out a sigh as she looks over the bills for the month, trying to think how they’ll stretch the paycheck her husband Jim will bring home tonight. Groceries will take $800. Then there’s the house payment, light bill, payment on the new washer, payment on the car, shoes for the kids, and the cell, cable and telephone bills.

Already it adds up to almost as much as Jim’s paycheck will be.

And there’s that bill for the things she charged on Visa. A birthday gift to buy for Susan. Allowances for the children. And Jim really needs a new suit before his trip to New York at the end of the month. They’ve been planning to get it from month to month but there never seems to be enough cash to go around.

Alice decides she’ll talk with Jim about getting the suit on some type of installment plan. They never have bought clothes “on time,” but she sees no other way to get the suit by the time he needs it.

And so it goes… another “easy” payment !

More Debt: Good or Bad?

Many other families are in the same boat as the Smith’s – using more and more credit to buy the things they want.

Some folks say this is a bad situation. Others say it’s good – that wide use of credit is one of the things that helps to give us such a high standard of living in America.

Good or bad, many families and individuals do use credit in order to enjoy today… instead of waiting until they can save the purchase price of such things as automobiles, refrigerators, washers, Big screen TV’s, education, and even vacation trips. Others use credit in the form of a charge account simply as a convenience. Still others borrow money to meet emergencies, such as illness or being out of work. And some folks say that buying electronic equipment and furnishings for the home on the installment plan is a way of saving – that they wouldn’t be able to save the purchase price of such items without a contract to make them do it. Moreover, some will say, even though it costs more to buy “on time,” it’s worth the extra cost to have certain conveniences and comforts while the family is growing, rather than to wait until enough savings can be accumulated.

Does that sound like your situation? That’s one of the reasons so many are experiencing such difficult times. There is a way out… and we’ll be digging deeper into the world of consumer finance. Get ready to make some changes in the way you handle money!

You hear it everywhere: Wages must be kept high in order to increase the purchasing power of the wage earners, so that they can buy back the products they make in our factories, and thus keep everybody working and prevent depressions.

But in both theory and practice, that “high wage and spending” cliché confuses the issue in two ways. First, regardless of the division of industrial income between wage earners and dividend earners, that income will still be spent in one way or another for more goods and services. Thus, the issue is not “spending” as such, but rather who does the spending and for what. Second, it is capital investment (which is also “spending”) that builds the factories and provides the jobs here under discussion.

Actually, when there is an increase in the percentage of total income going for wages, there is also likely to be an increase in unemployment.

Here is how it works : When a company has losses or earns comparatively small profits, a higher percentage of the income available for distribution obviously goes to employees rather than to owners. During such “red ink” recessions and depressions, the owners get little or nothing; the employees sometimes get it all. Yet it is precisely during these loss-and-low-profit periods that unemployment is highest.

The Department of Commerce will confirm the following: When the percentage of national income going to capital is higher than usual (that is, when industrial profits are above average), jobs are plentiful and unemployment is comparatively low. That correlation between high profits and more jobs should be obvious to everyone, since you can easily deduce it from the fact that companies go broke and close down when there are losses or inadequate profits. But for some unknown reason, that direct and observable relationship between industrial jobs and profits is usually denied by union leaders and government officials.

Since 1930 and our government’s deliberate policy of maintaining wages above the free market level, peacetime unemployment has become our most persistent economic problem. And millions of American workers are still unemployed today, in spite of the highest consumer purchasing power (and spending) in our history. Yet, for the most part, union leaders and lawmakers claim they will correct the situation by raising wages at the expense of profits!

All the “consumer purchasing power” in the world cannot create even one permanent job in an economy where the return on capital is negligible or nothing. That is, if every person in the world had twice as much money as he now has to spend, not one job would thereby be created unless the owners of the factories believed they could earn adequate profits. It is the actual and anticipated return on capital, not consumer purchasing power as such, that causes investment in new buildings and machines, and the resulting creation of more production and more jobs. Thus, laws and coercive union policies that increase wages at the expense of profits do not create jobs; they destroy them.

The headlines have been full of the banking giant Citigroup and their financial problems. Crying to the government to give them a helping hand at the tax payers expense.

Doesn’t is seem strange that a multi-billion dollar financial company which loans people and business money everyday from financing homes, credit cards, business and everything in between must now essentially go back to the people (their customers) they loan money too and ask for help.

Loan Lessons to Learn

We can learn from all of this money mess on a personal level, break down Citigroup’s problems and apply the principles to our own lives.

One for the things Citigroup did was make horrible lending choices. They went against “best lending practices” and loaned money to people who probably should have not received any loan. True, the borrower did have to ask for the loan and they are at fault also. However, the borrowers did not have the cash reserves, steady income or give enough of a down payment to handle a money storm. Or these same people got a credit card with limits and spending habits out of check with no financial discipline… just like the company that gave them the loan.

Don’t be like Citigroup and make bad lending (borrowing) decisions. Understand the limits, start learning to manage money the same way in good times or bad. Why should handling money be different?

What is your cash reserve now? Do you have an emergency fund? Have you borrowed way beyond your means to repay? Freeze the spending and begin to pay things down.

Citigroup made bad choices and it is costing them dearly. Will your choices cost you? You unfortunately do not have the luxury of heading to D.C. and picking up and check for your bad decisions.

When applying for a credit card, you must understand the importance of the APR. The Annual Percentage Rate affects how much you pay in interest on your credit card. With millions of Americans are currently in debt, you should understand how credit cards work to avoid falling into the same trap.

Using credit cards can become very expensive, especially if you have a high APR. Be sure you understand the interest rate and all of the fees associated with using your credit card. If you don’t, these fees can really add up, making it hard for you to pay the bill each month.

If you have bad credit, you will probably only qualify for a card with a high APR, as well as additional annual fees. If you do sign up for such an offer, pay the bill on time every month, and then in six months contact the lender and ask for a lower interest rate.

One way to do this successfully is to research other credit card companies willing to offer you lower interest rates, and threaten to leave if your current credit card company does not lower their rate. However, if do not often pay on time or have only recently gotten the card, this strategy will not work.

Before applying for a credit card, make sure you do your research so that you know how interest rates work and what would be a reasonable APR for you to accept. Also look at the Terms & Conditions to learn about fees for balance transfers, overdrafts, cash advances, and other activity on your account. Consider how often you would be charged these fees to find a card that works well for your situation.

Again, if you already have a credit card, then make all of your payments on time to increase the likelihood of getting a better interest rate in the future. If your credit card company will not lower your interest rate, consider switching to a different credit card company willing to offer you a better rate. Make sure to take care of the remaining balance on your current card before leaving, or you could be charged a penalty fee.

Keep in mind that credit card interest can add up quickly from month to month. If you don’t pay your balance in full each month, having a credit card can get expensive. Ask yourself if it is worth it, and try your hardest to lower the interest rates. Make sure you understand exactly how much your credit card is costing you each month, and weigh the benefits against the risks.

If you feel that you can do without a credit card, that is a viable option to consider. In fact, many people do not use a credit card. Make sure you read all of the details if you do decide to sign up for a card. If you don’t understand the card’s fees, you could find yourself in debt because of the credit card.

Just because your credit isn’t the best doesn’t mean you can’t get a personal or signature loan from a bank or institution. However, having an excellent credit rating makes it much easier and with lower interest. But, these types of loans are now available and can be a great way to build your credit rating and manage your finances effectively.

Obviously, there is a price for having less than perfect credit and in this case, it’s higher interest rates. They aren’t always unreasonable, however, so shop around and see what is available first. It should go without saying that the worse off your credit is, the less likely you’re going to find a good interest rate. So be reasonable in your expectations and demands.

Secured personal loans, backed by property or collateral, are also good choices. It also gives you incentive to make sure your payments are on time, every time. Creditors know this and will be more likely to give a loan under these circumstances. Your car, home, or other property are all viable sources of credit for you.

Each time you successfully use and pay off credit, your credit account will go up and you’ll have a better and better score. That all-important score is what secures your ability to get better and bigger loans, easier terms, and better interest rates. So keep building that credit score up.

Utilize the tools you have and make sure your credit is being used well. Wisely paying your loans on time or early and making sure your terms are acceptable so that this can happen is the key to success in building or renewing credit.