Be Proactive to Avoid Bad Credit

A positive outlook can make the world a much more pleasant place. But sometimes, it's hard to look on the bright side of life when you have bad credit. Your best bet is to be proactive and steer clear of bad credit before it happens.

Barney Fife, the tough-talking deputy from the classic television comedy The Andy Griffith Show, believed that the best way to curtail crime was to "Nip it in the bud." The policeman's wisdom extends to the financial realm, as well, because bad credit can be avoided if you stop it before it starts. Here are some simple ways to do just that.

Credit cards-loans, not cash

Credit cards can be disastrous, especially if you view them as cash instead of what they truly are-loans. A credit card company will extend you a line of credit, but the moment you tap into it, you'll start paying interest on the balance, with rates often higher than 10 percent.

If you're going to use your credit card, treat it like a checkbook. Make sure that you have enough money in the bank to pay off your charges at the end of the month. If you wind up carrying a balance, your credit score will go down.

Too many cards, too much trouble

Your mailbox is probably jam-packed with offers for new credit cards. While it may be tempting to pump up your wallet with plastic, you're only asking for trouble-and a lower credit score. Credit bureaus, the organizations that assess your overall credit score, keep tabs on how much plastic you have available to you. If you have a number of lines of credit and carry unpaid balances on each, expect your credit score to plummet.

The ideal scenario is to carry only two or three cards. Make one of them a rewards card, and use it for everyday purchases. This will allow you to accumulate points, provided that you pay off the balance at the end of the month. Keep a second piece of plastic on hand as a back up.

Not a wise financing option

Never use your credit card as a financing tool for big purchases like appliances. A more prudent choice would be a home equity line of credit, which will give you a lower, tax-deductible interest rate. You could also try saving money for a big purchase, and when you've got enough cash, use a rewards card to make the buy. Then, take the cash you've been saving, and pay off the entire balance at the end of the month. You'll gain the rewards points, and pay off your balance in one fell swoop.

Bad credit is like a garden weed. It slowly grows all around you, and if you don't "nip it in the bud" early and often, it will overgrow your personal financial garden. Being proactive-especially when it comes to using your credit cards-is a smart way to avoid bad credit.