Managing Consumer Credit

There are five elements that financial institutions utilize in order to determine a person's credit worthiness (CTU Online, 2005). Your credit report is their number one source for obtaining this information. The first element is your character stability. Creditors determine this by examining your past payment history. The second element is your capacity level. Creditors determine this by how much of your income is consumed by your debt. The third element is the amount of capital you possess. The fourth element is whether or not you have any collateral for the loan. The fifth element is the condition of the economic environment.

Credit cards can be beneficial if they are used in the right way; if they are not, it could lead to debt. Credit cards offer consumers the ability to combine all of their debts so they only make one payment a month instead of several. They also offer "rewards" for spending a certain amount on your credit card like flight miles, coupons, etc. If you've accumulated too much debt, it is best to transfer that debt to a lower interest credit card. This will help you pay off the balance at a faster rate. However, you don't want to continuously open and close credit card accounts as this can also ruin your credit. It is best to keep the first credit card you open, open and never close it (Irby, n.d.). The disadvantages of using credit cards consist of not knowing how much debt you are accumulating, less cash flow until the debt is paid off and higher risk of late payments which can ruin your credit. You will always be in debt if you continue to make purchases on your credit card while paying the minimum monthly payment. Remember to pay a little more over the required minimum monthly payment when making payments to your credit card. Not only does this lower how much interest is accumulated on the balance but it also shortens the length of time you will need to pay your credit card off.