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Top 10 credit tips

beard-160April has been declared Financial Literacy Month in Memphis and the rest of the nation. This special, month-long observance should cause us to reflect more intently on financial literacy, which has received significant attention as a result of the Great Recession.

The loss of personal wealth by many households brought to the forefront the fact that too many adults, including those who are about to leave for college or enter the workforce, lack basic knowledge of financial topics.

This issue is of particular concern here because the Greater Memphis area in February was rated as having the lowest overall consumer credit score in the United States by Trans Union Credit Report Company. In addition, the City of Memphis has one of the largest amounts of unbanked and underbanked residents in the country.

The Memphis Branch of the Federal Reserve Bank of St. Louis recognizes that people need personal finance knowledge and skills to make informed financial decisions. In that light, here is a Top 10 list of smart habits and tips related to credit.

1. Establish credit by paying bills regularly and on time; contact a creditor if a payment is going to be late.
2. Establish credit by opening and using a checking or savings account at a bank or credit union.
3. Establish credit by acquiring a credit card, making small purchases with the card and paying the entire balance each month.
4. Avoid using pre-paid credit cards.
5. Avoid nontraditional financial providers, such as payday lenders and car-title lenders.
6. Know the interest rate and fees for any type of credit arrangement – they can have a significant impact on your monthly payment.
7. Understand compound interest – not only are you charged interest on your credit card balance, but also on accrued interest. As a result, if you aren't making payments on your credit card or you are only paying the minimum balance, you will pay significantly more for your purchases.
8. Your credit score is like your work history – it follows you wherever you go. A poor credit score can keep you from renting an apartment, buying a home or getting a job.
9. Know the five things that determine your credit score (payment history, amount of your current debt, the length of your credit history, the amount of new credit that you have obtained and the types of credit that you have).
10. Get your credit report every year, and check for errors. Obtain your truly free credit report from annualcreditreport.com.

By making a conscious effort to use this Top 10 list, both your personal financial IQ and your credit score should improve by this time next year.

For additional information about financial literacy, visit the St. Louis Fed's web site, www.stlouisfed.org/education_resources.

(Martha L. Perine Beard is the Memphis Regional Executive for The Federal Reserve Bank of St. Louis. Email her at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 901-579-2400 (w).)


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