In the past, I have reviewed other financial web site’s rules about credit, and I have even offered some of my own.

How Does The Consumerist Stack Up?

The Consumerist is one of my favorite web sites. They regularly highlight corporate abuses, consumer best practices, and outright zanny behavior from companies of all sorts. One of their writers, Meg Marco, has even written, the “Consumerist’s 10 Commandments of Credit”.

Here is my evaluation of them:

1) Thou Shalt Pay Off Your Balance In Full Every Month.

We are off to a great start here. I mention this in most of blog posts about reward cards. This habit is so critical since those who start down the dark path of interest payments have a hard time digging themselves out.

2) Thou Shalt Get A Credit Card With Extended Warranty Protection, Cash Back or Reward Points, And Thou Shalt Take Advantage Of Them.

Here Meg is just getting started on the virtues of using a credit card over cash. There are now reward cards that offer an amazing 2% cash back on all purchases, as well as other reward cards that can offer rewards worth 4% or more. As long as you are paying your balance off in full every month (see rule number 1), you are throwing money away if you do not have a reward card. Extended warranties are great, although I have never used them, but so is rental car protection, loss protection and all of the other benefits offered by most cards

3) Thou Shalt Check Your Credit Report.

Kind of like flossing your teeth twice a day, this is great advice that I am afraid to admit I don’t always follow. I have checked my credit report many times before, but checking all three major agencies for my wife and I, once a year like clockwork is a task I just haven’ t gotten around to.

4) Thou Shalt Pay All Bills On Time.

This is a no brainer. Organizing your finances around a user friendly electronic payment system is probably the single greatest thing you can do to save time and money. Once you do so, paying your bills on time can take just a minute a week. My only criticism is that this rule is awfully similar to rule number one. I guess she had to get to 10 Commandments somehow.

5) Thou Shalt Avoid ID Theft. Buy And Use A Shredder, and Thou Shalt Not Fall For Phishing Scams.

More excellent advice. I have witnessed people going through my trash the night before pickup, and now I only put the trash out in the morning. A shredder is such a cheap investment, compared to the years of agony it can take to undo the damage of identity theft. Phishing scams can be remarkably easy to fall for, so educate yourself and your family on what they are and how to avoid them.

7) Thou Shalt Avoid Interest On Consumer Debt. Thou Shalt Try To Pay Interest Only On Student Loans, Mortgages And Car Loans.

I have an objection here. I do not believe in making payments on cars is a wise use of your money. Cars, unlike education and homes, are a terrible investment. New cars loose value the moment you drive them off of the lot. You can always drive a better bargain with a dealer when you are paying in cash. I believe that you should only drive a car that you can afford to pay for in cash. If that is not a new car, there are plenty of great used cars out there. Car loans have terrible interest rates compared to home loans and education loans. Furthermore, they are not even tax deductible.

If you absolutely have to drive a car more expensive than you can pay for, at least take out a tax deductible home equity loan. That way, you get to pay for it in cash, you get the tax deduction, and you get a much better interest rate than you would on a car loan.

Think you are getting a great rate with a manufacturer’s promotion? Think again. Even the 0% interest rates usually have some small print offering you thousands less if you pay by cash. You are not getting a low interest rate, just a higher price.

Thou Shalt Keep Thine Credit Utilization At A Reasonable Level.

This is more good advice. It doesn’t make sense, but you are actually penalized by the credit agencies for not having enough credit cards. It is a stupid way of enticing people to take out more credit than they need, but it is the way it works. Even if you think you have enough credit, if you regularly use more than %30 of it, consider finding another credit card, especially one with a generous sign up bonus.

9) Thou Shalt Not Cancel Credit Cards, Thou Shalt Try To Keep Them Open So As Not To Shorten Thine Credit History.

This is also good advice, but vague. My understanding is at least a year is good history. I don’t open and close cards in less than a year. After that, I don’t mind closing a card to take advantage of a newer offer.

10) Thou Shalt Not Constantly Obsess Over Thine Credit Score. Life is too short.

More good advice. Why bother obsessing about this. If you followed the other rules, you have very little to worry about.

In Conclusion

Good work Meg! Now just pay off your car and start saving up for one that you can pay for in cash.

This entry was posted on Friday, January 2nd, 2009 at 23:52 and is filed under Credit Score Repair FAQ, Debt Reduction FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.