- Personal Finance
Tips for Using Credit Cards Wisely
Being a Grown Up Means Using Credit Wisely
Credit is one of those issues that come with being an adult. Maintaining a good credit score is necessary in order to buy big-ticket items such as a car or home. Credit cards are a large part of what drives a credit rating. They tend to stay open the longest, apart from a mortgage, and report to the rating bureaus throughout their life. A consumer needs to recognize this fact and be smart about using their cards.
Keep Utilization Low
Some people receive credit cards with insanely high credit limits, sending off a siren song of temptation to use it. Simply put, do not. The higher the balance, the more interest accrues, and the longer it will take to pay it down. It’s a classic trap that keeps people in thrall to servicing their debt for years.
Instead, aim for no more than using 30 percent of the balance. The reason for this is to be able to maintain payments in case someone suffers a loss of income. Another good reason for doing so is that it demonstrates fiscal responsibility to a future lender. Being responsible with usage now can turn into favorable lending later.
Resist the Urge to Open Up New Accounts
Having a great credit rating is a wonderful feeling. There’s a sense of power that comes with being able to simply sign for something with having to put little or no money down. Achieving this is a matter of being wise with card accounts. No adult should ever need more than three open cards. Use one for emergencies, another for when cash reserves are low and the last on random purchases, preferably small ones. Having any more than that may start a credit card juggling act.
Play it safe; be conservative. Three cards are plenty for the credit bureaus to report on. Certainly, there are reasons for having more than three, but utilize logic here. Let us say that a card stops giving out reward points, and a card offer comes along with a great reward system. Either pay off the balance on the old card or transfer it over, if available, and retire the old one. Put it in a drawer or cut it up, but don’t close the account. An unused card will still report to the agencies, putting a positive spin on the overall rating.
Read the Statement Every Month
Don’t just glance at the current balance and monthly payment then toss the statement aside. Read it over for any changes that are in the works. The CARD act of 2009 requires that the card issuer notify the card holder of any major changes 45 days in advance. Changes are in the statement as well as regular mailings.
Another section of the act keeps the issuer from randomly raising the interest rates. They cannot raise the interest rates randomly anymore. This applies only to those who own a fixed rate card; those who have cards with a variable A.P.R. will still see changes. Simply taking the time to read the statement avoids headaches down the road.
Stay Out of Trouble with the Credit Card Companies
Credit is a tool, not a toy. Using it wisely is the key to making it work for the consumer, not the other way around. Read every piece of literature that comes from the issuer thoroughly. It may not be a compelling read, but it is the small print that trips up the consumer. Take advantage of offers to get a reward for using credit if they exist. Get something in return for using a card. However, most of all never let the credit cards get out of control.