Advertising
Advertising

10 Rules Of Using Credit Cards You Must Know

10 Rules Of Using Credit Cards You Must Know

Credit cards can be an immense boon when you hit a really rough patch financially, giving you much needed breathing space when you need your cash for pressing expenses like rent, groceries or gas. That being said, credit cards can quickly go from being a great financial safety net to something that gives you immense grief later if you don’t use them wisely.

Below you will find 10 credit cards usage rules. Rules that if you follow prudently will allow you to reap the benefits that credit cards have to offer, without having to deal with the headaches that they can otherwise bring. Here are our tips for using credit cards wisely.

1. Don’t sign up for every credit card that comes your way!

If you already own one credit card or if you have a decent credit score, chances are that you will inevitably receive pre-approved credit card offers in the mail. This, however, doesn’t mean that you have to sign up for each one of those offers.

First, see if you need another credit card at all. If you really do, take half an hour to read through the various invitations you have received to see which new card could give you the best benefits. The important factors that you must consider are APR%, annual fees, introductory 0% interest periods, late payment fees, the credit limit, and any add-on card fees.

Remember, signing up for many credit cards is not only a way to unnecessarily increase your creditor base, it is also a potential way to negatively affect your credit score.

2. Keep your card’s outstanding balance at $0, as much as you can

When you use your credit card, you know that your credit card company gives you a few days of interest-free grace. If you pay off your balances during this period, you won’t be paying any interest charges, while also having the ability to rotate your cash for a few days.

Advertising

However, this will only happen if you pay off your balances. Let the outstanding balance accrue for just one month and you will quickly start to rack up high interest charges.

3. Avoid the dreaded minimum payment habit

One of the worst pitfalls that lead to succumbing to the perils of a credit card is when you only make minimum monthly payments. If you spent $2,000 on your credit card, your credit card statement is going to instruct you to pay only 2% of your outstanding balance as minimum payment, a payment which works out to $40.

Now, if that credit card charges you a 20% APR, a monthly interest charge of 1.6% is going to apply on the $1,960 that you will have pending, assuming that you just paid off the minimum payment. 1.6% of $1,960 is $32.

In other words, even though you think you have paid off $40 from your balance, you have essentially paid just $8 ($40 less $32) off your total balance.

If you keep up this trend, you will actually end up paying $8,960, over 30 years, to eventually pay off the $2,000 that you borrowed from your credit card company!

Quite shocking, isn’t it? This is why it is very important that you do your math right when planning your credit card repayment schedule.

Advertising

4. Never, Ever Miss a Payment Deadline

One of the cardinal rules of intelligent credit card use is to pay on time, every time. Though a lot of people intend to pay off their credit cards on time, many just forget.

Missing your deadline by a couple of days might not seem like that much of a big deal to you, but credit companies will be very quick to levy late fees and even possibly increase your APR%, especially if you have been late on more than one occasion.

If you have many credit cards and have a hard time keeping track of all the deadlines, it makes a lot of sense to keep a monthly alarm on your phone or calendar for each of your credit card deadlines, to make sure that you are never late.

5. Check and double check your statement

It is not uncommon for credit card statements to have erroneous transactions. Sometimes, a purchase could have been billed twice on your credit card and you will never find out unless you physically inspect your credit card statement.

Moreover, if you use your credit card for recurring payments, especially for online facilitated services, you can quickly forget what charges accrue on your credit card statement every month.

Taking a monthly look at your credit card statement will allow you to stay on top of your expenses and also help you quickly investigate purchases or charges that might have been added to your account.

Advertising

6. Report lost or misused credit cards immediately

If you ever misplace your credit card or receive a text that shows that an unknown transaction has been debited to your credit card, it is imperative that you immediately call your credit card company to block the credit card.

When your credit card ends up in the wrong hands, your hard earned credit can get used up in just a few seconds. Though you will have the opportunity to prove that your credit card was used fraudulently, it will without a doubt be a long, frustrating and arduous process that you can easily do without.

7. Never withdraw cash from your credit card

If your credit card’s high APR% wasn’t bad enough, you are going to be in for a rude shock when you find out more about how much your credit card company is going to charge you when you do a cash advance on your credit card.

First off, you are going to be charged 2% to 4% of your withdrawal amount as a cash advance fee. Next, you are going to be charged an ATM fee, about $5. Then, on top of all of this, you are going to pay an interest rate that is much higher than your usual APR%. Lastly, you don’t get an interest-free grace period on your credit card cash advances.

8. Don’t charge your card just to earn rewards

Free airline miles, car rentals or redeemable points at various stores can sound like exciting incentives to use your credit card. You might think that it is one way for you to actually make the credit card company pay you for a change, right? Wrong!

The fact of the matter is that the odds are always in favor of the credit card companies. They know that you have to spend a significant amount of money on credit cards to earn a reasonable amount of points that you can then use like spending money. They also know that you will invariably falter when it comes to keeping your outstanding balance at $0.

Advertising

When they get the chance to accrue interest on your credit card, the interest you pay on your credit card is easily going to be more than the rewards you are eligible for, thereby giving you a financial expense instead of a gain.

9. Negotiate and bargain with your credit card company

Have you been a good credit card customer over the years, paying off your balances and keeping balances low? If yes, you deserve to be rewarded with lower interest rates. All you have to do is ask for it. Call your credit card company’s customer service line and ask for an account manager.

Once you get on the line with them, ask them for a revision of your APR%, citing that you deserve to be charged less for having been an ideal customer. You will be surprised to know that such revisions are often carried out by credit card companies. They will however rarely do it on their own though.

Pick up that phone and ask for it. You can also ask for late payment fees to be reversed when you make that rare late payment.

10. Call in advance if you are having trouble paying off your credit card

If times are tough and you just don’t see how you are going to feasibly pay off your credit card in the coming months, it might be prudent to make a proactive call to your credit card company, explaining your difficult financial situation.

When you do this, they will work with you on an alternative repayment plan. Besides getting slightly relaxed repayment terms and more time to pay off your credit card, you will also reduce the chances of your credit score being negatively affected the moment you miss or delay a payment.

Featured photo credit: Credit Card Volcano by Wilkins Gallo De Oro via flickr.com

More by this author

10 Best eBook Reader Apps for Android You Need to Know Mac Buggy after Mac OS Sierra Update? 4 Fixes Here! 5 Alternatives to A Traditional Business Loan Retirement Calculator Image from Money Looms1 How Pizza, Alcohol, Restaurants & Clubbing Can All Add Up to a $600,000 Retirement Top 10 Smartphones In The World

Trending in Money

1 Top 6 Hacks on How To Build Credit Fast 2 Want to Get Free Product Samples Like Bloggers and Beauty Gurus Do? Read This. 3 8 of the Best Places to Buy Used Goods Online 4 How To Pay Off Credit Card Debt Fast: 7 Powerful Tips 5 How To Make a Million Dollars in 7 Steps

Read Next

Advertising
Advertising
Advertising

Last Updated on March 3, 2021

Top 6 Hacks on How To Build Credit Fast

Top 6 Hacks on How To Build Credit Fast

When done right, credit can open doors and provide a lifestyle that you never imagined possible. Anything from flying around the world in first-class and staying at 5-star hotels entirely for free to starting and scaling businesses. It’s also an area where it can be easy to make mistakes and hard to recover from without the right information. In this article, I will break down how you can build credit fast so you can open doors in your life!

When you start to think about improving your credit score, you have to answer three important questions first:

  1. What are you trying to achieve by having good credit?
  2. What really is your credit score?
  3. How is your credit score calculated?

What Are Your Credit Goals?

Having a high credit score is great, but ultimately, your credit score is a tool in your personal finance arsenal that you can use to open doors. The first question you should ask yourself is “what will a higher credit score do for me?”

I work with many clients directly at Freedom Travel Systems to help them fully leverage the power of their credit so they can enjoy free luxury travel and start or grow their business. For my clients and many others, here are a few common goals many credit-savvy individuals have:

  • Free Travel – getting access to travel rewards cards so you can get tons of free travel and even get first-class flights, hotel suites, and luxury amenities all for free
  • Start/Grow a Business – getting access to business credit so you can start and grow a business with 0% or low-interest financing that does not impact your personal credit
  • More Approvals – getting approved for credit cards, auto loans, or mortgages so you improve your lifestyle or build your personal wealth
  • Better Rates – getting better interest rates on any loans you get will save you tens or hundreds of thousands of dollars over your lifetime

What Is Your Credit Score?

Your credit score is simply a 3-digit number that tells potential lenders how reliable of a borrower you are. Keep in mind that lenders, such as banks and credit issuers, stay in business by lending. Their goal is to find the people that have the highest probability of paying them back and they assess this primarily through your credit score.

What’s important to know is that there are two major scoring models used to create your scores. These scores are your FICO Score and your Vantage Score. More than 90% of lenders rely on your FICO score, so when you are checking your score, you want to make sure you see the actual score that the lenders use. And no, checking your own score does not hurt your credit!

Advertising

Then enters the 3 main credit bureaus, which are essentially agencies that collect credit information on you. These are Experian, Equifax, and TransUnion. These bureaus then apply a scoring model to the information they have on you and voila, you now have a credit score! Bureaus sometimes have different information on your report, which is why you will see 3 different scores.

How Is Your Credit Score Calculated?

Next, you need to understand how the credit score is calculated. This will provide a high-level overview, but there is more detail to each of these factors alone.

There are 5 main factors in the calculation of your credit score:[1]

  1. Payment History (35%) – This refers to the amount and percentage of on-time payments you have.
  2. Utilization (30%) – This is how much revolving credit you use as a percentage of the total revolving credit issued to you. Note that installment loans like auto-loans or mortgages do not count towards this while credit cards do.
  3. Age of Credit (15%) – This refers to how long your credit history is, primarily your “average age.”
  4. Credit Mix (10%) – This is how many different types of credit you have. For example, there are credit cards, student loans, auto loans, mortgages, personal loans, and lines of credit.
  5. New Credit (10%) – This primarily refers to how many inquiries you have for new credit.

Top 6 Hacks on How to Build Credit Fast

Now that you’ve learned more about your credit score, here are the top 6 tips on how to build credit fast.

1. Don’t Close Your Cards

Many of us are taught that getting a new credit card is bad and having too many will hurt your score. In fact, the opposite is true. You want to have many positive accounts reporting to your credit report. Logically, this makes sense because having more accounts with more on-time payments shows that you are a more reliable borrower. You just don’t want to open too many accounts too quickly since that can hurt your “new credit” factor.

Instead of closing a card, what you should do is simply keep the card open and put a small subscription service on it monthly. Why? Because each time you have an on-time payment, it helps build your payment history, the largest factor of credit.

Advertising

If you close a card, you are missing on potential on-time payments, age of credit, credit mix, and also lowering the total credit lent to you so your utilization percentage may go up. If you have an annual fee on a card you don’t like, see if there is a “no-fee” version of the card and downgrade it to that card rather than close it.

2. Use Autopay to Never Miss a Payment

This one is easy to do and easy not to do. Go into your credit card account and set up auto-pay. You can choose to either pay the full amount, the statement balance, or the minimum payment. Personally, I like to set up autopay to pay the minimum payment so that I never get a late payment. Then, I go in and manually pay the statement balance each month by the payment due date.

This helps me personally see my spending and have a manual review of my charges while ensuring, not have to pay interest, and still get the benefit of making sure that I never miss a payment if something goes wrong. Think about it, if you were to have a medical or family emergency, the last thing you want to experience on the back end of that is a late payment and a drop in your credit score. So, set up autopay.

A pro tip is to update your payment due dates across all bills and accounts to be the same so that you can “time batch” the process and have one time a month where you sit down and handle your payments. You can do this by simply contacting the credit card company or doing it online.

3. Get a Credit Limit Increase to Lower Your Utilization

One of the factors that get most people into trouble is using too much of their allotted total credit. Their utilization, which is the percentage of revolving credit they use, goes up, and their score tanks. You should aim for less than 30%, and in an ideal world, less than 10%.

To help drive this down, call your credit issuer and ask for a credit limit increase. This will help increase the total amount of credit extended to you and drop your utilization. Oftentimes, they will only give it to you when your utilization is fairly decent (less than 50%), so work to pay it down as best as possible before doing this. You should ask if the credit limit increase will give you an inquiry as some banks do a hard inquiry while some do not. If they do a hard inquiry, it is often better to just get a new card altogether or pass.

Advertising

4. Add Authorized Users to Increase Your Age, Add History, and Decrease Utilization

This is one of the best hacks out there as it helps with the 3 biggest factors of improving your credit: payment history, utilization, and age. This concept is also called “credit piggybacking” where someone with great credit history on a card adds an authorized user (AU) to the card. When the AU gets added, the credit history and information from that card are added to the AU’s report!

This is extremely helpful for people with young credit because it can drastically increase your age of accounts. It can also help many people with limited payment history or high utilization.

Please be aware that anything good or bad on that account you are added to will show up on your report. So, you want to avoid any cards with negative marks or high utilization. That being said, it is a one-way street, so nothing that you do with your credit can impact the primary account holder.

This is so valuable that there are companies that sell AU accounts. I always suggest starting with your family and/or personal network first as there are likely people in your network that can help!

5. Space Out Your Application Strategy

New credit is the smallest factor of credit, but it still matters! If you are looking to build up your credit, you should space out your applications. If you apply for too much credit in a short period, it looks very needy in the eyes of the lenders. For this reason, it is safest to apply for cards slowly over time unless you have really studied more in-depth how this works. A good rule of thumb is once every few months.

If you are in the credit game for the hopes of getting tons of credit card points for free travel, which is what I personally take full advantage of, you will want to familiarize yourself with the different bank rules and card promotions to put together the right application strategy. Applying blindly will waste inquiries and leave tons of benefits on the table!

Advertising

6. Review Your Report for Negatives

If you have any negative or “derogatory” marks on your credit report, this will hurt you drastically. They do impact you less as they age, however, you should review your credit report to ensure that everything on your report is 100% accurate and actually yours. Wrong information ends up on credit reports all the time and you will want to take personal responsibility for making sure it is accurate.

The “burden of proof” is on the credit bureau to confirm that any information on your report is in fact accurate. If you find inaccuracies, you can dispute that with them, or you could consider getting a credible credit repair company to help you.

Final Thoughts

There you have it, the top 6 tips on how to build credit fast so you can get closer to reaching your goals. Now that you’ve learned more about how credit score works and how you can improve yours, you’ll hopefully be able to make better financial decisions and achieve your financial goals quicker.

More Tips on How to Build Credit Fast

Featured photo credit: CardMapr via unsplash.com

Reference

Read Next