Credit cards are a blessing and a curse of modern finance. While they free you from the need for cash, help to build credit and give you easy purchasing power at establishments around the world, they are also an easy way to accumulate harmful debt.
Obtaining a first or new credit card is a moment for intelligent thought and planning. From your first steps into the world of credit, or as part of an effort to rehabilitate your credit, you should know and practice good credit card behaviors. Here are six:
1. Bank online
Most banks these days offer online banking. Make sure to register your new credit card for online access, so that you can constantly check your account and track your spending. Better than receiving a monthly statement, by which point you’ve forgotten most of your expenditures, more consistent monitoring of a budget will keep you within your credit limits. The digital revolution has even prompted banks to develop apps that let you check accounts and pay credit card bills from your smartphone.
Many people would rather not deal with the harsh reality of their bank statement. However, a responsible credit card user will make sure to keep updated on their spending and payment obligations. While you could, theoretically, pay your credit card bill on the day it arrives, most people don’t. Therefore, another option is to set a reminder on your computer or smartphone calendar – giving you an update a day or two before your final chance to go online and pay your credit card bill on time.
While it might seem logical that using cash is wiser than using your credit card, just remember that each time you use your card (and pay your bill on time) you are giving a small boost to your credit score. You should make sure to keep cards active so that your credit score is benefiting from the purchases you make. If you don’t use your credit card, there’s no information for credit card companies to report to credit bureaus. At a minimum, use your credit card to make at least a purchase once every few months
4. Pay up
The most ideal way to manage a credit card is to use it only to spend as much as you have. This allows you to also pay your ENTIRE bill every month. This simple credit card habit is somehow not obvious to many people but has multiple rewards. This method keeps your debt to a minimum, earns you more good credit points, and makes you eligible for lower interest rates in the future. Don’t make the mistake that many do: thinking that your credit card is designed to let you buy things you can’t afford and then pay at some later date.
5. Negotiate interest
Knowing the rate of interest you pay on your credit card debt is key to knowing whether accumulating this kind of debt is wise or foolish. Rates vary, but are also usually negotiable. As soon as you’ve established a record of paying bills in full and on time, try to negotiate a better interest rate from your credit card provider.
6. Don’t close
Cutting up extra or old credit cards might seem like a smart way to prevent yourself from accumulating irresponsible debt. However, what you might not realize is that this could damage your credit score in other ways! Closing an older account will cause your credit history and score to change. The length of your overall credit history makes up 15% of your credit rating. Closing an older card will simply shorten the history associated with your score and negatively affect it. It’s smarter to eliminate newer rather than older credit cards.