Centsible Credit - How To Use Wisely
Credit cards can be a great financial tool, when used properly. They can also create a lot of havoc when used improperly. Credit cards make it easy, but potentially expensive, to buy nearly anything. They’re also a great way to improve your credit, as long as the balances stay low. Learn how to use them wisely and avoid the potential pitfalls.
Keep these tips in mind when pulling out the plastic:
1. Pay off your balance each month. Ideally, this way, you'll never pay any interest. In general, if you can't pay it off, you can’t afford it in the first place.
· Always make your payment before the payment due date. Credit card companies make more money from late payments than they do from interest. Don’t let these profits come from your pocket!
2. Stay within 30% of your credit limit. A large portion of your credit score is determined by how much of your available credit you're currently using. Banks refer to this as your 'utilization ratio'.
· The general consensus is that you're fine as long as the number stays below 30%. This means, for example, that if your limit is $10,000, you should never owe more than $3,000.
3. Negotiate a lower interest rate. Don't think that number is set in stone. Your credit card company would rather get 16% than get 0%. You'll likely be surprised if you call and ask them to lower it; let them know you're thinking of switching to a lower interest rate card.
4. If you can't make your payment, let them know. Refrain from making them chase after you. Be proactive and explain your situation. They’re frequently willing to work something out. At the very least, you can usually get the late fees waived.
5. Keep your accounts open. Remember that your utilization ratio is important. If you close your account, you reduce the amount of credit you have available overall. Eliminating that card could make you go over the 30% threshold. If your utilization ratio is well below 30%, feel free to cancel.