Credit can be a powerful tool to help you solve your financial problems quickly, but if not used properly, it can lead to unwanted financial risks. Therefore, understanding and adhering to the basic principles of using credit is extremely important to protect your personal finances and ensure that you do not encounter serious debt problems.
WHAT IS CREDIT LOAN?
Before going into the principles of using credits loans, we need to understand clearly what credits loans are. Credit loans, also known as credit loans, are a form of borrowing money that you do not have to provide collateral. Banks or credits institutions will grant you a certain credit limit, and you can use this amount as needed. After using, you must pay back the credits institution according to the agreed terms. Each credits loan usually comes with a certain interest rate and a specific payment period.
One of the special features of credits loans is that you do not need to pay off the loan amount immediately, but you will have to pay interest if you do not pay in full within the interest-free period.
PRINCIPLES FOR USING CREDIT LOANS SAFELY
To borrow credits effectively and safely, you need to follow the following basic principles:
1. CHOOSE A REASONABLE LOAN LIMIT
One of the most important principles when borrowing credits is to choose a loan limit that suits your ability to pay. Choosing a loan limit that is too high will make it difficult for you to pay and can lead to a situation of mounting debt. On the other hand, choosing a loan limit that is too low may not meet your financial needs.
To determine a reasonable loan limit, you need to carefully calculate your monthly income, living expenses, and current loans. Make sure you only borrow an amount that you can repay on time without putting financial pressure on yourself.
2. READ THE LOAN TERMS CAREFULLY
Before signing a credit loan contract, you need to carefully read the terms and conditions of the loan. This includes the interest rate, late fees, annual fees, and payment time regulations. Sometimes, additional fees can greatly affect the amount you have to pay later, so it is extremely important to understand the terms.
Don’t rush into signing a contract without carefully reading it. If there are any unclear terms, ask the bank staff to explain them specifically before deciding.
3. PAY ON TIME
One of the most important rules when using credit is to always pay on time. If you do not pay the full amount by the due date, you will be charged high interest rates and may be subject to additional late fees. Paying on time not only helps you avoid additional costs, but also improves your credit score, thereby opening up opportunities for future loans with better terms.
To ensure timely payment, you can set up an automatic payment service or schedule payment reminders on the due date.
4. MANAGE CREDIT UTILITY RATIO
Credit utilization ratio is the ratio of the amount you have used to your total credit limit. Banks usually recommend that you should not use more than 30% of your credits limit. Maintaining a low credits utilization ratio will help improve your credit score and reduce the chance of being rejected when you need to borrow money in the future.
For example, if you have a credit limit of VND 100 million, you should try to use less than VND 30 million. If you exceed this ratio, the bank will see you as someone who has poor financial management skills, and your credit score may be affected.
5. CHECK LOAN CONTRACTS AT REPUTABLE BANKS OR CREDIT INSTITUTIONS
Getting credit from reputable banks or credits institutions will help you avoid unnecessary risks, such as high interest rates or hidden fees. Before deciding to borrow money, you need to carefully check the information of the credits institution, including operating licenses, reliability and customer support services. Reputable credits institutions will have reasonable and transparent terms, helping you protect your rights throughout the loan process.
6. USE CREDIT LOANS STRATEGICALLY
Credit loans can be an effective tool in managing personal finances, but you need to use them strategically. This means only borrowing when you really need it and making sure you can afford to pay it back on time. Don’t use credits for unnecessary purposes, or overspend on things that don’t add long-term value.
A good credit strategy is to always pay off your balance before the end of the interest-free period, which will save you money on interest and avoid falling into debt.
7. CONTROL DEBT AND LIMIT OVERBORROWING
One of the common mistakes that many people make when using credit is borrowing too much and not controlling the amount of debt. This can lead to not being able to pay in full and on time, which can cause serious financial problems.
To avoid this situation, you need to clearly identify the necessary loans and only borrow the money you really need. Prioritize paying off old loans before taking out more, to ensure you don’t fall into debt.
8. MONITOR AND CHECK YOUR CREDIT HISTORY
To better understand your financial situation and avoid mistakes in the credits borrowing process, you need to check your credits history regularly. This will help you recognize if there are any errors in your credit report, and help you track your loans and payments to ensure you are on the right track.
CONCLUSION
Principles of credits use are an important part of personal financial management. Adhering to these principles will not only help you use credit effectively, but also protect you from serious financial risks. By choosing the right loan limit, making payments on time, controlling your credit utilization ratio, and checking your credits history regularly, you will be able to use credit safely and achieve your financial goals.
