There is a lot ambivalence surrounding that little plastic thing with the magnetic strip we call a credit card. We hate them because they get us in debt over our heads. We love them because we can use them to purchase stuff without having to use cold hard cash that we don’t have. Any financial pro will tell you that if you don’t watch your expenditures that go on your card, your credit will take a nose dive faster and deeper than with just about any other financial instrument.
Conversely, to those who handle the credit card with care, they become a tool to sagely build up their credit and protect their financial future VCC buy . The question is really not whether you should use a credit card but how you should use it. Using that rationale, here are five tips from the financial experts on the proper care and management of credit cards.
1) Do some research and don’t just grab at the first credit card offer you see. A big mistake that people make when choosing a credit card is simply to sign up for the first one they can. The low interest, no annual fee cards are probably not the one you are looking at. These cards do not come with the fierce marketing strategy of the cards with the high APR. Read the accompanying literature as you will be the one stuck with the fees if you don’t.
2) Limit the number of cards you get. It’s a lot easier to keep track of what you’re spending on one card than it is to track your spending on three. Or five. Or seven. Or however many you’ve got sitting in your wallet right now.
3) Opt-out of interest rate increases. Everyone complains when their card issuer decides to increase the interest rate on their card. What they don’t realize is that they have a choice. In this case, when your credit card company’s trying to raise your interest rate past what you’re comfortable with, you can “opt-out”. You won’t be able to charge anything more to that card, but you’ll still have up to 5 years to pay off your current balance. (Check this policy with your credit card company before signing on the dotted line.)
4) Use your debit card instead. A debit card can be used in the same way as a credit card but draws funds for the amount of purchase immediately from your checking account. This makes them as flexible and convenient as a credit card, without running up a debt you can’t pay. Cash is practically obsolete, but the debit card is a fine substitute for cash and will keep you from running up an exciting credit card bill.
Many consumers are reaching the age where it’s time to start taking care of themselves. This is the point at which establishing credit is most important. However, the one class they don’t teach in school is how to establish credit. There are a few different ways that consumers can establish credit ranging from opening up new utilities accounts to buying a car from a buy here pay here lot. However, I have found that the best way for consumers to establish credit scores is through the use of secured charge card accounts.
Secured credit card accounts are credit card products that even consumers with bad or no credit can qualify for. This is because before consumers can use their new secured credit card, they must place a security deposit with the bank that will then become the credit line for the card. This security deposit makes it so that Americans are borrowing their own money alleviating the banks of any risk involved. Usually, after 12 months, the security deposit will be returned to the consumers if the Americans use the credit card account properly.
This gets us to the part where we will talk about establishing credit. To establish credit, it is important for Americans to use their new secured charge card properly. There are a few surefire ways to establish credit with secured credit cards. The first of these ways is by Americans spending less than half of their credit line. Generally, when Americans spend more than half of their credit line, it signifies the early signs of financial hardship. Therefore, keeping a balance of higher than 50% of the allowed credit line on a charge card can actually damage consumer credit scores!
The next way to use secured charge card accounts to establish credit is to use your card! Many people are under the false impression that just by having a credit card, they are improving their credit rating. Unfortunately, this is not the case. To establish good credit, Americans have to show that they can “use” charge card accounts responsibly. By holding a credit card account in the top drawer of a dresser, people are only delaying the process of establishing credit. It is important to use the credit card for purchases but, keep in mind as stated above, consumers should not spend more than 50% of their credit limit!