Credit cards can get a bad reputation at times and not for good reason. I guess when I was a kid there was always the perception that using a credit card was bad, like meaning that you didn’t have the money to make the purchase. Maybe that was just what it seemed like years ago, while now it seems like everyone uses a credit card. While sure, you can easily go into debt if you are not careful with spending and are unable to pay off the statement balance by the due date, but actually using a credit card can not only make great financial sense, but can actually ignore the many credit card rumors that are out there.
You Don’t Need a Credit Card
Now can you live your life without a credit card? Of course, if you have the money in the bank. Using a debit card though does not help your credit score though, which is important if you ever plan on getting a mortgage, a loan, car insurance, or even a job these days with potential employers checking credit scores. By having a credit card, you can build your credit score by charging and paying off each month, building a solid payment history with the creditor, showing you are responsible borrower and rewarding you with a high credit score to get the best interest rates on the market.
Carrying a Balance is Good
While, yes, charging on your account is good to build up your credit score, that also means that you need to pay off the balance of the account so your credit utilization remains low. The higher debt you have compared to your available credit the more your score will be lowered, making it important to ensure that the balance is paid down to zero each month, on top of avoiding paying interest if you can pay off the full statement balance in time, otherwise you will start to get charged interest, which can send you into debt pretty quickly.
I’ll Keep One Card for Emergencies
It may not be a bad idea to keep a credit card on you at all times in case you do have an emergency and have to make a large purchase if you don’t have an emergency fund in the bank for times like this, it also makes financial sense to carry multiple cards as well, provided you don’t charge on all of them and maximize your credit utilization. If you can stay disciplined in not carrying a balance on every card, your score could actually improve by having multiple, not to mention it might be nice to have a card with a low interest rate just in case, not to mention a rewards card that you can use all the time.
Credit Line Increases Hurt
As you start to put more and more activity on your credit card account, which isn’t a bad thing, you will either get rewarded with an automatic credit line increase or be asked if you want to accept one. Now again, if you can stay disciplined to not go on a charging spree, having a credit line increase is actually a good thing because it increases your credit utilization, and actually could raise your credit score in the meantime.
Close the Account When $0
No matter if it took you a couple months to pay off a balance or maybe you had been in debt for years, it’s a great feeling when you finally see that credit card balance go down to zero. It’s a great accomplishment. If fact, your first reaction may be to close the account so you don’t charge up the account again. While you may not trust yourself to hold back on the spending, you can actually cut up the card, but still leave the account open. That way you maintain the history of the account and keep your credit utilization.
Keep the Applications to a Minimum
Sure, you don’t want to go applying for a ton of credit applications at once, giving the impression that you might be going on a spending spree, but there certainly isn’t anything wrong with opening up a new application if it makes sense, say for a better card with lower interest rate or higher rewards. Your credit score might take a hit for a few points at first, but over time it will go back to normal, just may not happen overnight. That’s the thing with credit, it comes with a lot of patience.