Credit cards can be a great financial tool when used properly. They can also create a lot of havoc when misused. Credit cards make it easy, but potentially expensive, to buy nearly anything.
Credit cards are also a great way to improve your credit, as long as the balances stay low. Learn how to use them wisely and avoid potential pitfalls. Learn these tips for using a credit card wisely!
1Pay Off Your Balance Each Month
Ideally, this way, you'll never pay any interest. In general, if you can't pay it off, you can't afford it in the first place. Always make your payment before the payment due date. Credit card companies make more money from late fees than they do from interest. Don't let these profits come from your pocket!
2Stay Within 30% Of Your Credit Limit
A large portion of your credit score is determined by how much of your available credit you're currently using. Banks refer to this as your utilization ratio. The general consensus is that you're fine as long as the number stays below 30%. This means, for example, that if your limit is $10,000, you should never owe more than $3,000.
3Negotiate A Lower Interest Rate
Don't think that number is set in stone. Your credit card company would rather get 16% than get 0%. You'll likely be surprised if you call and ask them to lower it; let them know you're thinking of switching to a lower interest rate card.
4Notify If You Can't Make A Payment
Refrain from making them chase after you. Be proactive and explain your situation. They're frequently willing to work something out. At the very least, you can usually get the late fees waived.
5Keep Your Accounts Open
Remember that your utilization ratio is important. If you close your account, you reduce the amount of credit you have available overall. Eliminating that card could make you go over the 30% threshold. If your utilization ratio is well below 30%, feel free to cancel. If you want to cancel because you're wasting money on a card with a high annual fee, then find a better card with an appropriate credit limit to take its place if you're near your threshold.
6Limit Everyday Purchases On Credit
Unless you're careful, it's easy to overspend. If you use your card to buy all of your food, gas, clothing, and other expenses, you might find yourself short when the bill comes due. Keep close tabs on your charges. Also, remember that a need is not the same as something you want. Avoid spending money you don't have, on something you don't need.
7Find The Right Card
There are a ton of options. Some cards give some money back for gas purchases. Others give credit towards plane tickets. Do your research and find the card that best fits your situation. The interest rate and associated fees are important.
Remember that all of these kickbacks are not only to entice you to sign up for their card. They are also there to get you to use the card frequently. Be smart when using a credit card and avoid the temptation to over-extend yourself.
Credit cards can be excellent tools to build your credit score, make emergency purchases, and save some money. However, they can just as quickly create a tremendous financial burden and ruin credit scores when misused. Use your credit cards wisely for a more secure financial future.
Jackie Wing is an Alaska native who enjoys snowboarding more than is probably socially acceptable. She lives in Anchorage with her two dogs Reese and Peanut or as she likes to call them Thing 1 and Thing 2.