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Ignore Your Lender

Looking for tips on responsible borrowing? You won't find it in your credit card statement. The last place you should seek advice on managing your credit is with the people who stand to make money off of your debt.

1. Don't let creditors set your spending budget. You have been deemed creditworthy by some entity (Target, Visa, Puppy Palace) that is willing to let you borrow money for a short period of time. Though your credit limit may add up to $34,538, that is not money you should feel free to blow.

2. Ignore banker's rules. Your debt-to-income ratio is the measure of how much debt you carry to how much money (after taxes) you have coming in. In the world of lending, it is "acceptable" to carry 25% of your income in debt. Consider this example:

Total credit card debt: $6,437
Total after-tax annual income: $30,000
Debt-to-income ratio: 6,437 / 30,000 = 21.4%

A 21.4% debt-to-income ratio is awfully high in our opinion. The ideal number is zero. But at the very least you want to keep your debt -- including car loans -- to 15% or less of your after-tax income.

3. Don't pay by their rules. The "minimum amount due" is cleverly calculated to keep you beholden to The Man for your entire adult life. A $4,500 balance will take 44 years to pay off, even if you don't put another dime on the card. Oh, and the interest you'll pay on that loan? A cool $17 grand.

4. Check your tab. You name it (overdrafts, "convenience" checks, talking to a human customer service rep), and lenders have found a way to charge you for it. Read the fine print, particularly on those blank checks they keep sending.

5. Verify the rumors. Your credit GPA -- your report and score -- is used by lenders to measure your creditworthiness. What are they saying about you behind your back? Your borrowing transcript is at your fingertips. Find out what's there (for a limited time Fool readers can get a 3-score/3-report transcript for $34.95 from our sponsor TrueCredit) to make sure that your record is an accurate reflection of your borrowing ways.

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