Credit cards have their pros and cons. They can help you build a solid credit history, but they can also lead to hardship if you don’t use them wisely. The more knowledge you have about credit cards, the better you can incorporate them in your financial strategy.
Continue reading, in order to understand how best to utilize credit cards and secure financial well-being for the long term.
You Have Rights With Credit Cards
Even if you make some mistakes with your credit card, you won’t lose your rights. For example, credit card collection agencies have to stick to the law when they’re collecting debt from you. Knowing the laws in your state will empower you to report collection agencies that aren’t sticking to the law.
Compare Perks to Choose the Best Credit Card
When you’re looking for a credit card, compare the perks of different credit cards to decide which offer is the best one to take. For example, you can take advantage of free baggage check, roadside assistance, purchase protection, extended warranty, and lots of other perks. Consider your buying habits when you’re looking for a credit card.
You Don’t Have to Spend Up to the Credit Limit
Your credit card issuer will set a credit limit of what you’re able to spend, but it’s best to spend below that. Set your own personal “credit limit” and always leave some credit just in case of an emergency. Doing this also gives you the benefit of keeping your debt low enough that you can afford it.
Manage Your Credit Utilization
Credit utilization is an important number to know because it has a major impact on your credit score. Credit utilization ratio is the amount of your credit card balance compared to your credit limit. A credit card with a $400 credit limit and $1000 balance would have a 40% credit utilization. Having a utilization below 30% is best for your credit score.
Keep Your Total Debt Low
Keep your total credit card balances below a certain amount that’s manageable for your family. Aim to keep your credit card balances below 10% across all your credit cards. This keeps you from taking on more debt than you can afford to repay.
You have to pay back everything you charge on your credit card. Keep this in mind as you’re making purchases with your credit card. You never want to charge more than you can afford to repay.
Don’t Ignore Your Creditors If You’re in Trouble
If you’re having trouble making payments on a credit card, it’s best to contact your credit card issuer to work out a payment arrangement. Ignoring your debt will only hurt your credit score since collections have an awful impact on your credit score. Don’t assume your creditor won’t allow you to make smaller payments if you haven’t asked for this option.
Pay Your Balance Off Quickly
Paying your balance in full each month is best. If you can’t afford to pay the full balance, anything you pay above the minimum is better than the minimum. Paying the minimum keeps you in debt longer and costs you more in interest than if you doubled up on your payments. Don’t use your credit card for purchases while you’re trying to pay off the balance. New purchases increase the amount of time it takes to repay your balance.
Credit mistakes aren’t the end of the world, but learn from your mistakes so you can use credit cards as a tool to improve your credit and avoid damaging your credit score.