Credit cards have a bad reputation-many consumers dislike using them because they don’t like the concept of borrowing money, or have fallen into debt in the past. However, the responsible use of credit cards can help you build healthy credit by establishing and maintaining an active credit history on your credit report. Jenny Morgan, credit expert at ACCION, offers the following guidelines for using managed credit card “debt” as a tool for financial success.
1. Think short-term with credit cards. “As a rule of thumb, don’t purchase items that you can’t pay off in a year or less,” says Morgan.
2. Pay more than the minimum. Although credit card companies may only require you to pay 2-3% of your monthly balance, try to pay more. You can save thousands of dollars on interest if you pay your debt off as quickly as you can.
3. Watch your limits! A third of your total credit score is determined by the ratio of credit used to the credit you have available. Ideally, use around 30% and no more than 50% of your credit limit. According to Morgan, ‘Maxing out’ your credit cards will only harm your credit score.
4. Always pay on time! Late payments result in costly fees-not to mention a decrease in your credit score!
5. Find a card to meet your needs. Comparison shop to find the credit card that best meets your needs. Each card offers different annual fees, interest rates, and balance transfer rates. Morgan recommends using a credit card search engine like Bankrate.com to compare the benefits of different cards. (http://www.bankrate.com/brm/rate/brm_ccsearch_advanced.asp)
6. Read the fine print! If a credit card seems too good to be true, it probably is! Read the terms and condition carefully-that 0% APR introductory rate is just that- introductory- so make sure you know when the higher rate kicks in.
7. Don’t have more cards than you can handle. If your wallet is overflowing with credit cards, future creditors will think that you’re relying too heavily on credit, making you a higher credit risk. Limit yourself to five active credit cards.
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