Be Conscious, Not Cautious, With Your Credit Card

Credit can be considered a friend or foe – when used responsibly you can build trustworthiness with lenders to receive more favorable outcomes when shopping for a mortgage, car loan, or even a job. When used irresponsibly, however, you run the risk of damaging your financial future. Establishing wise and sustainable habits is key to creating and maintaining a good credit score. We offer four rules of thumb for using credit responsibly.

1. Read the Fine Print
   • Reading the fine print is an often overlooked best practice when applying for a new credit card or shopping for a loan. Although it can be tedious, it’s worth understanding the terms and conditions before proceeding. Pay particular attention to the fees, interest rates, and any rewards.  Card companies have mastered the art of predatory lending and they often glamorize card offers with images of a beachside vacation or backpacking in Europe.  Although these rewards are valid, there’s almost always a catch. While a 50,000 bonus mile offer is appealing, you may end up paying for some of it with an annual fee or other hidden costs. Take the time to read the fine print so you understand what is required of you in accepting a credit card offer. You’ll be more informed so you can decide if the rewards are worth the costs or restrictions. Check out this credit card glossary that can help you understand what to look for in the fine print.
2. Spend Only What You Can Pay Back
   • Research shows that consumers tend to spend more with credit than with cash, for obvious reasons. Getting into a habit of living a borrowed lifestyle can lead to a downward spiral of debt if you spend beyond your means. Although it’s probably easier said than done, committing to a rule of charging only what you can buy with your debit card or cash is a reliable way to set limits for your credit card spending.
3. Pay Off Your Balance in Full Every Month
   • Payment history is the most influential factor in determining your credit score. You generally have 30 days plus a grace period to make your payments. By paying as much as you can of your credit card bill –at least the minimum due and ideally the entire balance – you’ll minimize your interest costs and keep your credit score in good shape. Making simple changes like enrolling in auto pay or receiving text alerts when your payment is due can help ensure you’ll never miss a payment!
4. Think Before Closing Accounts
   • It’s no secret that closing your accounts has a negative impact on your credit score. In general, it’s best to keep the card you’ve had for the longest time to maintain a longer credit history. If you need to close accounts, however, start with the cards that carry high interest rates or annual fees. When you call the company to cancel, it doesn’t hurt to explain your reasoning – card companies will often find ways to waive the upcoming annual fee and allow you to negotiate a lower interest rate in an effort to keep you as a customer.

No matter how you choose to use your credit card, we consider it a best practice to obtain and monitor your credit report at least three times a year to ensure your credit habits are sustainable and help you maintain a good credit score. You can find information on how to do so in our piece titled, A Careful Review of Your Credit Report. In addition to your personal review of your credit score, we also suggest that you to enroll in around-the-clock credit monitoring. We highly recommend IdentityForce and encourage you to consider enrolling in their services at Yeske Buie’s negotiated rate.