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.
· If you want to cancel because you’re wasting money on a card with a high annual fee, then find a better card with an appropriate credit limit to take its place if you’re near your threshold.
6. Limit everyday purchases on credit. Unless you're careful, it's easy to overspend. If you use your card to buy all of your food, gas, clothing, and other expenses, you might find yourself short when the bill comes due. Keep close tabs on your charges.
7. Use your credit cards to purchase items you need. A need is not the same as something you really want. Avoid spending money you don't have on something you don't need.
8. Find the right card. There are a ton of options. Some cards give money back for gas purchases. Others give credit towards plane tickets. Do your research and find the card that best fits your situation. Obviously, the interest rate and associated fees are important.
· Remember that all of these kickbacks are not only to entice you to sign up for their card; they are also there to get you to use the card frequently. Be smart when using a credit card and avoid the temptation to over-extend yourself.
Credit cards can be wonderful tools to build your credit score, make emergency purchases, and save some money. However, they can just as quickly create tremendous financial burden and ruin credit scores when used improperly. Use your credit cards wisely for a more secure financial future.
-Tiffany M. Vaughn, CPA
Tiffany Vaughn is a Certified Public Accountant and owner of Cents Savvy, a financial services company. Cents Savvy was founded in 2016 in Belleville, Michigan. Cents Savvy offers financial planning, credit counseling, credit repair, credit rebuilding, credit repair services, tax preparation, small business accounting, debt counseling, tax planning, personal budgeting, personal finance, and insurance services. Cents Savvy’s goal is to become your Top Financial Resource! From saving money for retirement, or getting the biggest tax refund, to building and fixing your credit, Cents Savvy will assist you in achieving your financial goals.