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Don't let your credit be a work of fiction

Dawn Papandrea

April 10, 2014

With the upcoming film “Maleficent” and the hit primetime show “Once Upon a Time,” it seems we can't get enough of fairy tales and the lessons they instill.

We love to wrap ourselves in gold-spun tales that take us away from our everyday cares. But with every fable is a message we are supposed to get from the story. Slow and steady wins the race. Magic beans won't solve all your troubles.

Now, try applying those lessons to your credit. By taking a look at some classic tales to see how they relate to your credit habits, you can end up financially happily ever after instead of locked in a tower of debt.

Check out the lessons from these five tales:

You can't really spin straw into gold. There's no magic solution to debt problems, as all those balance transfer and consolidation offers would have you believe.

If it sounds too good to be true, it's probably not true, says Kathleen Burns Kingsbury, author of “How To Give Financial Advice to Couples.” “In order to recover from financial mistakes, often what it takes is very slow, consistent small steps toward your goal. Set up a plan where each week or each month you are slowly chipping away.”

Credit expert Beverly Harzog recommends you choose your own method of paying down debt. “A popular one is the snowball method that Dave Ramsey made famous. That's where you get rid of your smallest debt first to get a psychological lift. I prefer the debt stacking method in which you save more money by paying off the debt with the higher interest rate first,” says the author of “Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made.” Whichever way you choose, stick with it and you'll rule the debt kingdom.

Magic beans don't always lead to riches. Making foolish purchases rarely comes back to reward you.

From a psychological standpoint, says Kingbury, we tend to like words such as “free” and “bonus.” “The goal of the credit card company is to get you to spend more, and that's why rewards and points programs work,” she says.

Research shows that people tend to spend more with reward cards, says Harzog. But remember: If you don't pay off your balance in full each month, you can end up wiping out any rewards you've earned by paying more than they're worth in interest. “The number one rule is: 'Never carry a balance.' You have to track your spending and know when to stop,” she says.

A house of bricks is better than a house of straw. There's no easy way to build your credit foundation.

When it comes to your credit habits, you don't want to emulate the lazy pig. Being meticulous about paying all of your bills on time all the time — even when it's not as fun as fiddling about — is key toward building a good credit history, says Harzog. “And that's not just for your credit cards. Even your cellphone can get reported to the credit bureaus if you're late,” she warns. Set up reminders or automatic bill payments if you must — just get it done.

Also, check your credit reports every year to make sure there aren't any errors that can bring down your credit score. You can visit annualcreditreport.com to get your free credit report from each of the three credit bureaus (Experian, Equifax, and TransUnion) once per year.

The tortoise outlasts the hare. Over time, a steady credit history results in a winning credit score.

“It's not very sexy to be the tortoise,” says Kingsbury, “but you're better off in the long run. Do not be reactive with your finances by responding to unsolicited offers to take out more debt. Have a financial plan and say, 'What do I need right now in my financial life?'”

In other words, don't accept too many credit offers at once, says Harzog. “Credit is loosening up right now, so people are going to get a lot of offers in the mail. You need to pace yourself,” she says. This is true for people new to credit, as well as those who have great credit scores.

“A credit card can be a good tool to build your credit history,” says Harzog, “but only if you can use it responsibly.”

Cry wolf and you'll lose credibility. If you plan on giving creditors a sob story as to why you missed a payment, make sure you have a legitimate reason, and don't think you'll get away with it a second time.

If you get into a financial bind, you might get help from your creditors, but whatever you do, be truthful. “Creditors have a hardship department, but they don't like to advertise that. They save it for real, genuine situations where people have been great customers, but just need a helping hand,” explains Harzog.

If you've been diligent about paying on time, you could probably request to waive a late fee if you accidentally sent in your payment a few days past due. Just don't make it a habit. “If you're asking all the time for exceptions to the rules, they'll see you as a chronic offender and say no,” says Kingsbury. Even worse, your account could be flagged, and that might result in your APR going up, or credit limit decreasing.

Remember, when it comes to your finances, you can't rely on a fairy godmother to wave her wand and transform you from rags to riches.

“Don't expect that everything is going to work out if you don't take steps to fix it. Be proactive, and you can create your own happy ending,” says Harzog.