Many people have a hard time understanding how credit cards work. It can be especially daunting when you are just getting started with your first card. Having a good credit history is very important for getting good rates on insurance, buying a car, renting an apartment, and much more. Because it can be easy to lose track of your spending with a credit card, it is vital to avoid going overboard and make sure you don’t put yourself into debt. In order to do that, there are six credit card tips you may not have known that can help keep your credit score healthy.
1. Know The Different Credit Card Offers
Most people know that they should always look into the limit, interest rate, and fees that come with the credit card before getting one. However, people often don’t know what else there is to consider about a particular offer. There might be fees for late payments, cash advances, or balance transfers. You’ll also want to know whether you can change your due date because if not, then it’s possible you’ll end up paying a late fee. Going through a list of the top credit cards available, and seeing what each has to offer when it comes to rewards, interest rates, as well as how they relate to your specific credit situation is important for choosing the right one for you. It can be easy to get overwhelmed when you are looking at all of the options, but you should always prioritize your spending needs. There’s not much point in having a card that gives you great perks if the interest rates are so high that it makes it hard for you to pay your bill on time. On the other hand, finding a credit card that has reasonable interest rates and payment fees, that also provides rewards that are relevant to your situation can mean a better credit score.
2. Use Your Credit Card As A Budgeting Tool
One of the biggest mistakes people make when they get their first credit card is that they don’t come up with a set budget before they start spending. Credit cards are great for convenience, but if you’re not careful then it’s easy to rack up a lot in debts and interest. Having a monthly budget is really important especially when you’re just starting out. You could use the 50-30-20 system where 50% of your income goes towards necessities, 30% is saved and 20% can be spent on things you want. A credit card can actually make this easier because you can keep track of your spending and make sure everything adds up. When you stick to a realistic budget, your credit score will automatically improve.
3. Pay Your Credit Card Balance In Full Every Month
Many people are tempted to make only the minimum payment on their credit card because it’s easier, but this is a terrible idea if you want to have good credit. It might seem like not much money is being spent, but you’ll end up paying a lot of money in interest fees. Paying the minimum fee is a good option if you’re tight on money and need to pay off a large purchase, but it’s still important to pay more than that if you want good credit. In essence, this means that you’ll want to take a good look at your income – the way it’s set currently, and how it’s going to change in the future. By only using your credit card in a way that lets your 50-30-20 strategy work, you can have a good credit score without having to worry about high-interest fees.
4. Stay Under The Limit
It can be quite tempting to max out your credit card. You’ll probably think that it’s not much money if you’re just spending on groceries, but your spending could put your credit score at risk. For example, if you’re using more than 30% of the limit on your card each month, this will appear as delinquent to lenders and therefore affect your score. To avoid this situation, you’ll want to have a set limit that you can spend every month so as not to overload your credit card. It’s important to remember that it’s not just the amount you spend on your credit card, but how much is being used from the total available balance too. How much money you can spend depends on how much is owed, so it’s important to be aware of this.
5. Check The Statements
One of the best things you can do to maintain a good credit score is to actually look at your statements each month. You’ll want to make sure that if there are any errors in the transactions, then it’s important to make them known. If you are still able to receive paperless statements, you can simply log into your account and check that everything is in order. It’s also important to make sure that you stay on top of any charges or interest fees that could be incurred. You want to focus on the amount that’s owed and in what way it is being paid off, and looking at your statements makes this possible. Sometimes, while reading the statement, you might find that there were some unauthorized charges. Perhaps it was a family member or a friend who made the purchase, but it’s important to make sure that these transactions are removed from your statement. It’s also recommended that you check in on your account regularly even if there isn’t an unauthorized charge just to see what is going on with it.
6. Set Up Automatic Payments
To make sure that you never go over your limit, you can set up automatic payments for your credit card. This way, the balance is paid off every month and because it’s under the total amount allowed to be spent each month, there will barely be any money spent on interest fees. It may take some time to get used to having a credit card in the first place, but it can be especially useful when learning how to manage your money in a way that guarantees good credit. That way, you’ll never be at risk of forgetting to pay off the debt as it’ll be done for you so that you don’t have to worry.
Credit cards are actually excellent tools when used correctly. If you work on having a solid budget and stick to only spending what’s available each month, you won’t have to worry about racking up interest fees. If you are currently spending more than you should, however, it can make sense to cut back on purchases made with your credit card. It’s important to remember that if you don’t have the money now to pay off your balance, then you shouldn’t be using the card in the first place. That said, when you use your card properly, it can be a great way to manage your money and make sure everything is paid on time every month.
About the Author
Zeke Gavin is a freelance financial planner who aims to educate the younger generation and equip them with fundamental financial knowledge to help them make smart decisions on where to invest their money.