It’s National Credit Card Reduction Day! Did you cringe a little when you read that? Maybe, perhaps, because you know you need to clean up your credit card usage habits? Credit cards are one of the sharpest double-edged swords out there. When used properly, they can do you a lot of good. In fact, you really can’t build credit without using credit cards and if you don’t have any credit history, it will be nearly impossible to get a loan for a car, home, or other major purchase. Even if you feel ready to buy a house, if your credit card usage has been poor or absent, you may not get that mortgage loan. So, if you’ve been avoiding getting a credit card entirely thinking you were helping your credit, you’re painfully wrong. That being said, if you use a credit card poorly, it could mean your financial ruin. Credit card companies essentially “win” when you lose. The moment you fall behind on payments, those interest rates skyrocket and you wind up owing the credit card company much more than the original amount. Credit card usage is a game we all must play, but you have to know how to do it right. For National Credit Card Reduction day, here are tips for using your credit card responsibly.
Never spend money you don’t have
Always be aware of how much money you have in your checking account and make sure that, by the end of the month when that credit card bill is due, you can pay it off without receiving negative balance fees from your bank. A credit card is not free money—far from it. It eventually dips into your actual checking account, so always use it with that in mind.
Pay it in full each month
Do not get into the terrible habit of only paying the minimum each month. That just puts you in a terrible position the following month, with about twice the balance you’d expected. Making the easy choice today of paying the minimum makes the harder choice of tomorrow ten times harder. Just pay your card in full each month. A $1,200 bill this month is much easier to pay than a $2,400 one next month.
Mostly ignore rewards “deals”
Your credit card should earn you points that you can either use to get cash back, or spend on certain “deals.” Your credit card company has relationships with vendors and your points could count for, say, double the cash at certain stores. For example, your 2,000 points could either get you $20 cash back or count as $35 at a local movie theater. Though it’s tempting, don’t go for the deal. You’re just spending money on something you don’t need. Take the cash back.
Put it on auto-pay
If you already plan on having that money in your checking account, ready for your credit card bill each month, then just put your credit card on auto-pay. Then you don’t have to worry about forgetting to pay it.
Find one with a good points system
Think about the types of regular purchases you make (groceries, gas, travel?) and find a card that caters to that. Some cards, for example, give you double the points every time you buy gas. If you drive a lot, then that’s a great card for you.
Use less than 30 percent of your credit
Don’t use more than 30 percent of your limit. Going over 30 percent starts to ding your credit score. So if you have a limit of, let’s say, $5,000, don’t spend more than $1,500 a month on your card.
But do use the card
Don’t become so shy about using the card that you only hover at around five or 10 percent usage. You should use your card up to 30 percent if you want it to boost your credit score. Just be sure, again, to pay it in full each month.
Gradually ask for credit increases
The longer you use a card responsibly, the more likely the credit card company is to increase your limit. If you’ve been paying your card each month in full for a year, ask the credit card company for a credit increase. The reason to do this is that, if you’re given one, it looks good for your credit score.
Have no more than three cards
Don’t open more than three credit cards. Some financial experts may say you can have up to five, but that’s a slippery slope. Having around three that you pay in full each month is healthy for your credit score. Going beyond that could cause a ding in your credit score. It’s also just very hard to keep up with spending and make sure the money is there when you have too many cards.
Sign the back of your credit card
Sign the back of your credit card and have a little note on the back of your card that requires vendors to ask for your ID when you use it. This will go a long way in preventing credit card thieves from using your card.
Check activity regularly
Look over your credit card statement at least once a week to check for suspicious activity. If you shop online a lot, this is especially important to do. Not only could someone steal your credit card information, but some vendors may accidentally charge you twice.
Remember that bill is coming
Always have the awareness that that credit card bill is coming at the end of the month. Keep an eye on your checking account, and make sure the numbers add up such that there is more than enough in your checking account to pay that credit card bill. Also, when looking at your checking account, if you think, “Wow! I’m rich! I can spend a lot of cash!” remember that you already spent some of that money on your credit card. Your checking account just doesn’t reflect that yet.
Understand interest rates and fees
Thoroughly read the agreement with your credit card company before signing anything. You should be aware of fees and interest rates. You should be aware of maintenance fees. Sometimes these things are negotiable.
Don’t be tempted by mail offers
Once you have a credit card, all of the other credit card companies will somehow get your information and start sending you offers. If you have three credit cards with which you are happy, it’s best to mostly throw those new offers in the trash.
Never take out a cash advance
Never, ever take out a cash advance. This means going to the bank or lender associated with your card, and “buying” cash on your credit card. The interest rates on cash advances can be extremely high.