Most people use their credit cards in the wrong ways. More than half of Americans have over $5,000 in credit card debt, and they are paying interest on that debt. On the other hand, some people are afraid to use credit cards as they think all debt is bad and will use their debit card instead. In this article we will teach you 4 smart & simple credit card tips.
1. Choose Credit over Debit Cards:
According to a study called the Diary Of Consumer Payment Choice by The Federal Reserve, 42% of people say they prefer to pay with a debit card over a credit card. This debt avoidance may explain why those of us who achieved economic stability during the Great Recession have more credibility than others: According to a survey by Bankrate, Two-thirds of 29-year-olds don’t have a credit card, compared to just one-third of people over 30.
“But it’s dangerous to think that all plastics are treated the same by credit reporting and scoring agencies,” says credit expert John Alzheimer, who has spent years at FICO and Equifax. “Credit cards only light up your credit report, so if you avoid them, you’re not doing anything to help your credit score or set up your credit report.“
Credit cards come with lots of great benefits such as cashback rewards, 0% interest, travel points, discounts at hotels and restaurants and so much more.
If you ever plan on buying a new car, or buying a home or getting a personal loan, it’s important to start increasing your credit at a young age so when you’re ready for these big purchases you won’t get denied.
Really smart move:
Apply for a credit card today and start using it for your every day purchases such as groceries, gas, bills, and travel.
The benefits of using a credit card instead of debit card:
- Signup bonus- some cards will give you free cash just for signing up for a credit card
- Cashback rewards- credit cards will give you cashback rewards on purchases like groceries, gas, restaurants and some streaming services. That’s basically free money!
- 0% interest- get a credit card that has 0% interest for a year or more
Credit Card Recommendations:
If you have good credit applying for the Chase Freedom Unlimited credit card. It has a $200 signup when you spend $500 in the first 3 months, bonus, 3%-5% cashback rewards, 0% interest for 15 months and no annual fees.
If you have bad credit or no credit at all check out our list of Best Credit Cards for Bad Credit
2. Use Your Card With A Budget
Credit scoring agencies want to see that you are using your credit cards regularly, as it indicates that you can handle the credit available to you responsibly. But somehow this fact gave rise to a suspicion that you should not pay your bill.
“Balancing from month to month will be of interest to you and will not help your credit score,” says Betty Herdman, Credit Karma’s chief consumer advocate. It may hurt, as lenders see how the amount of your current balance compares to the limits of your total credit card. The lower the balance, the better.
So how do you prove regular use and earn your financial brownie points? Use your credit card for simple purchases that you would normally pay with your debit card like gas, groceries or eating out at a restaurants. Once you receive your credit card bill pay it off in full every month. By doing this your showing the credit card company that you are actively using the card responsibly and in turn they are sending this information to the major credit bureaus so your credit score will increase.
Set a calendar reminder so that you pay your balance in full and on time to avoid late fees. And if you find that “regular use” is changing to “regular splash”, use your card to set up automatic payments on boring bills instead. Use apps like Nanci or Mint to help you setup a budget.
Related: How To Get Rid Of Credit Card Debt
3. Increase your Credit Limits:
When Visa sends you an offer to increase the credit limit on one of your cards, you refuse. Time to pat on the back, right? Not when FICO determines your credit score, and your credit card utilization makes up 30% of your credit score. Also known as the credit card usage percentage or balance to limit ratio, it refers to how much you owe on your credit card to your total limit. If you owe $500 on a $500 card, you will have a lower score than the $50 owed on a $500 card.
To calculate your current roaming usage balance, divide your balance by the credit card limit and multiply by 100. Quick Example: If you have a credit card limit of $1,000 and $500 is owed on a card, your rotating use of that card is 50%. While 50% may not seem high to you, but consider that consumers with the highest credit scores have a rotating utility of less than 10%.
Really smart move:
One way to improve your credit score is to pay off your balance. But the second is to increase the credit limit on existing cards. Credit card companies let your increase your credit limit every 6 months so make sure you mark your calendar and send a request to increase your credit limit.
4. Don’t Cancel Your Credit Cards :
Maybe your wallet is crazy with millions of cards and you’re trying to create a streamline. Or you may be sick of all the temptations that come with having more than one card. Or it may be safer to have a card with you when it comes to identity theft. No matter what your motivation is, closing the credit card will lower your credit score, as it reduces your revolving usage.
Keeping your credit cards open will improve your score greatly. If you close a card that has a $10,000 limit on it because you never use that card anymore you have now lowered your credit utilization by $10,000, and lowered your average length of credit history.
In other words, do not cancel your credit card just because you don’t use it. The only credit card you should cancel is cards that have annual fees that you don’t plan on using again and if the credit card company refuses to waive the annual fee.
Really smart move:
If you don’t plan on using a credit card but don’t want the temptation of using it put it in a safe place for keeping such as a safe or a drawer. You can also place these cards in the back of your wallet away from the cards that you currently use.
Using your credit cards will increase your credit score if done in the correct way. As long as you pay your bills on-time, keep your balance low and don’t close any accounts you should see an increase in your credit score.
Do you have bad credit, no credit or want to learn how to become a credit expert?
Check out our credit repair training and learn:
- What your actual credit score is
- How to get a copy of your free credit report
- How to get your credit back on track today
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