What to Do & What to Avoid With Credit Cards
While credit cards can be a pitfall to many consumers, they are not inherently bad. They do come with the risk of borrowing more than can be repaid. However, knowing how to charge wisely can ensure that your household sees only benefits and none of the bills. Here are some tips to avoid the debt while enjoying the perks:
- DON’T carry a credit card in your wallet around town. Having a credit card in your wallet means you’re much more likely to use it (and overuse it at that). If you keep a credit card for “emergency purposes only,” then you’re unlikely to be in such a financial emergency close to home that you absolutely need a card. Keep a small emergency cash stash in your car or wallet. I can all but guarantee that even if you were to lose that cash, it would still be less than the overspending and the interest you’d put on the credit card.
- DON’T carry a balance on your credit card. In spite of the common sense of this advice, I hear far too many supposed financial experts tell their clients (who in turn become more likely to be our clients) to build their credit by carrying large balances on their credit cards while making only minimum monthly payments for 6 to 12 months. The reality is that you do not have to carry ANY balance from month to month to build your credit. If you want to make a small purchase or a regular payment on your credit, go ahead and do so, but pay it off in full every month by the due date.
- DO have a major credit card and use it regularly for small purchases (see #2 above) to build your credit in advance of buying a home. Credit card activity (monthly payments, zero balance) on your credit report is one of the most influential factors in your credit rating.
- DON’T get a secured credit card that does NOT report your activity to the major credit bureaus (Equifax, Experian, TransUnion). They’ll charge you fees and probably high interest but not provide you the benefit of building your credit history.
- DO shred all credit card offers you receive. That barcode on the offer could be filched from your garbage by an identity thief to open up an account in your name. Better yet, call 888-567-8688 or go to www.optoutprescreen.com to stop receiving all those offers.
- DO travel with a credit card rather than a debit card. If you lose your debit card or have it stolen, your entire checking account (and any savings attached to your account as an overdraft alternative) may be at risk. If you lose your credit card, contact the card issuer immediately and you’re likely not out any money at all.
- DON’T close out old accounts unless they’re charging you fees or unless the temptation to overspend on the card is too great to resist. Old accounts can boost up to 15% of your credit score.
- DO make all payments on time. Don’t wait until the last minute to send a payment.
- DON’T keep or apply for credit cards that charge an annual fee and excessive penalty fees.
- To build credit, DO consider applying for credit cards from a gas station or retail store.
These do not account for all my Do’s and Don’ts, but they’ll do for now. If you have some Do’s and Don’ts of your own, please feel free to share.
Have a great week!
Director of Education, Debt Reduction Services
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