Below are six common recommendations for wise use of credit:
1. Keep your credit score at 760 or above to qualify for loans with the best interest rates and terms. Credit scores will increase by paying credit bills on time and using 50% or less of available credit lines.
2. Keep monthly consumer credit payments (for example, loans and credit cards) below 20% of net (take-home) monthly income.
3. Keep monthly PITI (mortgage principal and interest, property taxes, and property insurance) payments below 28% of gross monthly income and monthly PITI, plus consumer debt payments, below 36% of gross monthly income.
4. Take the shortest car loan possible (for example, three years versus five years) to avoid being "upside down" on car loans (that is, where you owe more on the loan than the car is worth).
5. Don't use credit cards or loans as an emergency fund. Set aside at least three months' expenses in an easily accessible savings account.
6. Negotiate with current creditors for better interest rates and terms, or consider balance transfers if the interest savings outweighs the cost (for example, balance transfer fees).
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