Types

• Most debt falls into the category of revolving debt or installment debt. Credit card balances and lines of credit are two examples of revolving debt. With revolving debt, you are allowed to make purchases up to a certain limit. The payments required of you are based on what percentage of the debt you have charged. Installment debts have a set payment every month and also carry a payoff date. Mortgages and most loans fall into this category. One rule of debt management is to carefully balance your revolving and installment debt. Maintaining a little of both is ideal. This balance accounts for 10 percent of your credit score.
  
  

Building Credit

• Your credit score is the number that lenders will look at to determine your eligibility for a loan and how much you should pay in interest. Before you can ever hope to qualify for a good interest rate, you must first put forth the effort to build a good credit history. The length of your credit history accounts for 15 percent of your score. Starting out small with a secured credit card or borrowing against existing funds at your bank is a good way to begin building credit in preparation for your future.
  
  

Acquiring Debt

• Acquiring new debt periodically is an important step in constructing a solid credit profile and boosting your future buying power. This, however, must be done in moderation. Acquiring too much debt can hurt you, even if you make timely payments. Lenders who review your credit history will calculate your debt-to-income ratio. This is simply a method of measuring the debt you have against your current income. If your debt is too high, a lender will assume you cannot afford to take on any more debt and that lending to you would be a risk.
  
  

Debt Management

• Perhaps the most important rule of debt is that you take care to manage the debts you already have wisely. To make debt work for you, you must carefully keep track of your bills and always pay them on time. Not only does this help you avoid late notations on your credit report, but it can save you money as well. One late payment is all it takes to cause your interest rate to go up on most revolving accounts. Keeping balances low on your credit cards is another smart debt management technique. High balances on revolving debts can hurt your credit score.
  
  

Warning

• Working hard to manage your debts, carrying the right types of debt and maintaining a stellar credit profile means nothing if you are willing to allow someone else to ruin it for you. Never cosign on a loan with anyone unless you know with complete certainty that the individual is responsible and will make the payments on time. In the event that payments are not made, you will be legally responsible for the balance of the debt you cosigned for. If you are unable to pay, your credit report may suffer for a debt that was not yours. Cosign with caution!