Objectives of Credit Management

Your primary objective in credit management should be the avoidance of excessive debt. Easy access to credit--including multiple credit accounts with large credit lines--can lead to severe financial problems and even even bankruptcy in the event of a job loss or illness. You should follow conservative spending guidelines for determining how large your overall credit lines should be relative to your income--and how much debt you should carry on those lines.

Avoid excessive debt by limiting your overall credit lines. The website Bankrate says credit lines on your revolving accounts, such a credit cards, should be limited to a total of no more than 20 percent of your gross household income. That means if your gross household income is $60,000 you should have no more than $12,000 in total credit lines. That could be difficult if you have a home equity line of credit, which is another form of revolving credit and typically features large credit lines. However, you should try to remain under the 20 percent threshold for your credit cards and other revolving credit.

You should also limit the amount of available credit you use--the less used, the better. According to Bankrate, you should use no more than 30 percent of your credit lines. Under that guideline you would carry a total balance of no more than $3,000 on credit lines totaling $10,000. Keeping your credit lines in sync with your income and then further restricting how much of that credit you will use are two vital components of credit management.

Establishing rules for when to use credit is important as well. Equifax, one of the three nationwide credit bureaus, says you should reserve a credit card for emergencies but establish strict rules about what constitutes an emergency. Needing to replace a furnace in the dead of winter could be considered an emergency. On the other hand, breaking a golf club and needing a new one before Saturday's game may not be a legitimate reason for using your emergency credit card. Equifax says you should establish other guidelines for using credit as well, including considering a personal prohibition against using credit to finance expensive toys and luxury items unless you can pay the bill in full when the statement arrives.