Credit cards can be a wonderful thing, but they can also be dangerous if used carelessly. Those little plastic cards make it much easier to spend more than we would have if we were simply paying in cash. While credit cards are a convenient way to make purchases, that convenience can come at the cost of low credit scores and other financial distress if bills are not paid on time. With that being said, credit cards can be a great financial tool when used responsibly, which is what we’re talking about today!
10 Tips for Smart Credit Card Use:
Carry the credit card that’s right for you!
It all begins with the type of credit card or cards you choose to use. As you know, one size does not fit all in clothing and it doesn’t when it comes to credit cards either! Just think about it, how many credit card offers have you already gotten this week alone? There’s a card for literally everything! Lost in that sea of bids, might be one that you could actually use. If you’re really tempted by an offer or need another credit card, be sure to study the deal. It needs to make financial sense for your individual needs. Is it a crazy-low promo interest rate or 0% balance transfer? That’s fine, but if you plan on paying your card balance off in full each month then it’s not much of a deal, now is it? Maybe it’s a whopping number of rewards points or air miles that they’re offering. Perhaps it’s no annual fee or even cash back. Whatever the deal, it needs to be right for you and how you plan on using your specific card.
Keep track of your spending.
Have you ever gone crazy with your credit card all month and then been blindsided by a bill that will take you all year to pay off? Sadly, this happens quite frequently, especially when you’re living large on vacation or spending your way through the holidays. Yeah, we’ve all been there! Knowing your limit for certain things, such as a vacation or holiday shopping, and sticking within those limits will help you lessen the financial burden. Keeping track of your spending is as easy as regularly checking your credit card account balance online or via a downloaded app. While budgeting may not be your best friend, it can help prevent you from overspending.
Pay off your entire credit card balance each month.
This is a biggie! Nothing ruins your credit history faster than a missed payment. Don’t use that credit card for things you know you can’t afford. You still have to pay ultimately! And when you can’t, you’ll end up with missed payments and high-interest charges. Make it the top priority to pay your bill every month. You always want to be mindful of your credit score when you’re using credit cards.
4. Pay off your entire credit card balance each month.
Try and make it a rule for the benefit of your budget and your financial wellbeing to not charge more than you can pay off by the due date. Depending on your budget, it may even be smart to go online and pay your card down with a few smaller payments throughout the month. If you get paid weekly, perhaps prioritizing paying down your credit card with each pay will help you to better budget and prevent a buildup of debt. If you know you won’t be able to pay for something at the end of the month, don’t charge it. We understand that emergencies happen. If you do have to charge a costly auto or home repair, focus on paying down the balance as quickly as possible without adding more charges.
Consider paying off your high-interest credit cards with a low-interest balance transfer.
If you don’t know what it’s like to have a zero balance on your credit card as we suggested in number 4, then it’s time to find out! Carrying balances often results in significant monthly interest charges. If your balances are too high, you should start paying down your credit card debt. If your balance is high and the interest rate you’re paying is also high, then it may be time to transfer that balance to a lower rate card. Balance transfer promotions, such as Choice One Community Credit Union’s **2.99% VISA balance transfer rate can help tremendously. Most balance transfer promotions are limited in the time you have to pay off the balance before it converts to the regular rate, so you need to know that in advance and pay your card down quickly. But, like most tips on this list, if you use them wisely, you can make it work to your benefit!
Beware of credit card fraud.
Do you know the most common form of fraud in the USA? Credit card fraud. And for good reason, credit cards are convenient and criminals know this. They also know most cardholders don’t check their statements regularly. Be sure to check with your card servicer to set up mobile alerts to notify you about any (and in some cases, should you choose, all) transactions on your card. Monitor your account online (or via mobile app) to watch for any unknown charges that may appear. Check your credit report to watch for any unknown accounts you find and be sure to report them as soon as you discover them. Remember, you are eligible for one free and full credit report each year from each of the three major credit bureaus (Experian, Trans Union & Equifax). An app like Credit Karma will allow you to check your credit scores and accounts for free, whenever you wish. But remember it is not a full report, merely a snapshot. Finally, be cautious at the gas pump and with other card readers, including ATMs. Criminals tend to install skimmers where they can’t be easily detected. You need to have consistent vigilance. It’s not all doom and gloom though, as credit cards are much safer to use than debit cards when it comes to fraud protection. Use your credit card, just be smart!
If you don’t have a rewards credit card, now’s the time to get one!
This is a great way to get added perks when you’re paying off your balance each month. You can earn travel points, air miles, cash back, and so much more. However, this isn’t the best option if you’re always carrying a balance. It doesn’t make sense to charge up your card just to get points, especially if you’re paying high interest rates. It does make sense when you are paying off your card each month and want to enjoy a nice bonus for your purchases!
Be mindful of what should and should not be charged.
Sometimes people are unaware of other options for making purchases or paying bills and they automatically resort to using their credit cards. While credit cards are a smart choice for some purchases, for others they are not. For instance, if you need a kitchen remodel, a home equity loan may be a lower interest solution than a high-interest credit card. Even if the points sound good for a large purchase like this, you’re probably losing out when you figure out what your interest cost will be. This goes for college tuition costs as well. Student loans are traditionally a much better option. If you’re confused about this, your credit union representative or financial advisor can help explain the differences and benefits of each. On the other hand, credit cards are ideal for online purchases and for use when traveling. From booking your vacation to paying for items while you’re jet-setting, credit cards are quite handy and may come with added bonuses such as travel insurance, zero foreign transaction fees or return protection. In addition, if the card is lost or stolen, you can freeze the account immediately! Check with your credit card company to see what types of value-added services and savings you may have, and then put them to work.
Be aware of how your credit card can help (or hinder) your credit score!
Unlike most things in life, the older the better when it comes to credit. The age of your accounts matters heavily when it comes to your credit score. Don’t be so quick to close old accounts that have been keeping your age high. Secondly, if you need to lose a few accounts, try to only go after those with an annual fee or accounts where the temptation to overspend is high. If you have a good history of paying your credit card bill, you can request an increase in the limit. This increased limit will help your credit utilization score by decreasing your credit to debt ratio. Credit utilization is why you should keep your credit card balances low. It’s a great way to improve your score, and save money in the process!
Live below your means when it comes to using your credit cards.
Just because you’re charging it, doesn’t mean you need to buy the most expensive smartphone or extravagant pair of shoes out there. It’s important to remember that your credit card is not an extension of your budget. Even when you are earning a good living and have some flexibility in spending, savings should still be a priority. Rather than living largely, prioritize saving. It’s not as attractive an option, but it’s a smart one. You would be surprised how quickly you can get into credit card debt when you let your guard down and overspend.
We hope these best practices in credit card use help you to use your card more responsibly and better understand how your credit card can (and will) affect your credit score now and in the future.
At Choice One Community Credit Union, the financial well-being of our members is our number one concern. Whether it’s our tip-filled blogs helping to ensure you remain debt-free and fiscally-healthy or our renowned service, navigating you through the financial waters throughout your lifetime, we are here for you!
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