How to improve your credit rating

Just charge it! The phrase uttered a million times a day has become a mantra. In this world of instant gratification, credit cards have become our way of life. As businesswomen, we need to be particularly careful to maintain good credit. If we don’t it can affect both our business and personal lives.

We all know that occasionally credit card spending is absolutely necessary. The washing machine dies, and we run out and buy a new one.

But how many of us charge dinners out? And do we really need another new pair of shoes or earrings? The more credit cards we get, the more we spend! Each year our credit card balances get higher.

If you’re only making minimum payments on your credit cards, you are most definitely in trouble. Look at how much of your minimum payment is actually going towards the debt, and how much is simply paying off the interest each month. On a typical credit card with a balance of $1,000 at 18% interest, the monthly interest charge is $15. The minimum payment is $35. That means only $20 goes towards paying off your debt. At that rate, it will take you four years to pay off that credit card – if you don’t charge anything more on it. Knowing that can cause unwanted stress in your life and keep you awake at night.

Of course the banks and credit card companies are loving it. They’re raking in billions of dollars in interest each year. According to last year’s Oppenheimer Funds Inc.’s Women and Investing Survey, 60 percent of respondents had more than $5,000 in household debt, and 28 percent said they had more than $20,000 in debt.

Women are living longer, and if you ever want to retire, you must decrease your unsecured debt. You won’t be able to afford to make all those credit card payments if you’re only collecting a social security check each month.

So how does one end this viscous cycle of mounting debt?

Well the first step is going to be the hardest. Take out all your credit cards, and start cutting. That’s right! Set aside a Visa and MasterCard for travel and emergencies. The rest must go. Specific store credit cards charge the highest interest, and are totally unnecessary. Every store and gas station with their own credit card also accepts Visa and MasterCard. Don’t tell me you get this-or-that benefit with the card. The trade off is not worth it! Unless you are paying off 100% of the balance on the card each month, then it must go.

One note here – don’t cancel your credit card accounts. In fact, it’s best to leave them open. It’s better for your credit rating to have charge accounts available that have zero or little debt on them. But this takes courage. They will try to entice you with discount coupons, offers of instant cash now, and more. Tear them up and throw them all in the recycling bin!

Next, make a list of all your debt. Take your latest statements and see how much is owed in total to each company, what is the monthly payment and also note what interest rate they are charging. Now add them up and be prepared to be shocked. Were you aware of how much debt you had?

Next, list your credit cards in order of highest interest to lowest interest. The highest interest cards must be paid off first.

If your credit is still good enough to get a new zero interest (or very low interest) credit card, then go ahead and apply for one. Transfer the highest interest cards to that credit card so you won’t incur any more interest on as much of the debt as you can. Then be sure to make the payments on time, but continue to pay more on the high-interest accounts.

Get yourself on a controlled budget. Prioritize your needs. Stop supporting Starbucks and make coffee at home. Occasionally skip the night out drinking with the girls. Don’t charge anything that isn’t an emergency. If you don’t have the cash in your budget, you don’t need a new dress or dinner at a fancy restaurant. Get out the candles and cook a romantic dinner at home. Then put all that money you’ve saved towards paying off your credit card debt.

This could take a year or two, to pay down your debt, but it will be worth it! Your credit rating will improve and you’ll sleep better at night too.