Properly managing a credit card is smart way to help you establish credit and improve your credit score. On the flip side, credit cards can also damage your credit score and get you into serious debt if you don’t carefully consider how you use them. Use these tips to put credit cards to work for you.
Limit the Number of Cards You Have
One credit card is enough to build your credit, and it’s easier to manage than multiple cards and payments. Applying for a lot of credit at any given time can hurt your credit score and possibly make you a high credit risk. This can affect your ability to get loans or rent an apartment. Already have credit cards you no longer want? Avoid closing several credit cards at once, since this will trigger a decrease in your overall credit score. In fact, simply pay off the balances, destroy the cards, and leave the accounts open unless you pay an annual fee for any of them. Open, unused accounts that stay on your credit history help improve your score by building your length of credit history (how long you’ve had accounts) and improving your credit utilization rate (i.e., you have a higher ratio of unused available credit).
Select a card that has the lowest interest rate and fee structure, and be sure to read the fine print. You’ll also need to know about annual fees, late charges, other fees, and grace periods. Make sure you know the card’s Annual Percentage Rate (APR) and how it’s calculated. Shop around for the best deal and be wary of card offers that seem too good to be true. The best cards are those that offer low rates and fees, but pay cash back rewards or travel points on all or key purchases you make with your card, since they can save you considerable money.
Set Your Minimum Balance Low
This helps you control your spending habits. Spending up to your credit limit – maxing out your credit card – suggests you could be a credit risk since you might be likely to overspend. Nearing your credit card limit also reduces your credit score. By keeping your balances low, you’ll also protect the amount of credit you have available, which is important when you are ready to rent an apartment or buy a house.
Pay off Your Balance Each Month
This takes discipline, and it saves you money in the long run so you aren’t paying unnecessary interest. If you can’t pay off the entire balance on all of your credit cards, pay off your higher interest rate cards first, and always pay more than the minimum balance.
Avoid Late Payments
Late payments are bad for your credit, and a credit card company could use a single late payment as justification for raising your interest rate. This could cost you hundreds (or even thousands) of dollars over time.
Review Your Monthly Statement
Save your receipts so you can carefully compare the charges on your credit card receipts with your records to ensure an accurate monthly statement. Paper receipts are recommended for credit cards, but if you really don’t like them, you should review your online account activity weekly, and always review your credit card statement each month.
Balance Wants vs. Needs
It helps to think in terms of wants vs. needs before you buy something with your credit card: If you had taken cash out of your account to pay for this item, would you be buying it right now? If the answer is no, it’s likely a want. By resisting the temptation to spend impulsively with credit cards, you can maintain a healthy credit score with little risk of getting in over your head. If you’ve had problems with impulse spending, limiting yourself to just one credit card—and carrying it for emergencies only—is definitely smart.
Don’t Take Cash Advances
Beware – the cash looks attractive, but interest accrues from the moment you accept the cash, and you will also be assessed transaction fees. This means a quick $20 withdrawal from an ATM using your credit card could easily cost you $30 or more. This is not smart use of your finances.
Reconsider Large Purchases
If you’re considering putting a large purchase on your credit card, put yourself through a waiting period before you actually make the purchase. Remember, a large purchase will need to be paid off sooner or later, and you want to make sure you’re paying the least amount of interest on your credit cards as possible. The great sales price that entices you to put a large purchase on a credit card now goes away if you end up paying interest on the purchase.
Develop Smart Credit Card Habits
If you still need help figuring out what to use your new credit card for, consider using it for something you know you need to buy each month, such as gas for your car, and this will help you keep spending under control. No matter what you decide, make sure you stop and think about consequences before using your credit card for each purchase. You’re smart—so use your credit cards to help, rather than hurt, your overall financial strategy.
Need a copy for yourself?Download Credit Card Tips Now