To hear some people talk about it you would think that credit cards are something evil and should be avoided. This is just not the case. Credit cards are simply a tool much like a hammer or a screwdriver. Used correctly, they can make your life much easier. Used incorrectly, they can be dangerous. Here are a few thoughts on how to use credit cards correctly.
When you get your first brand new card in the mail it can easily be tempting to run out and buy all sorts of stuff. After all, you now have all this new money to spend (the credit limit). If you do this, your credit card company is going to love you because now they can charge you all sorts of interest while you pay back what you have borrowed. Resist the temptation and use your new card only for essentials and spend only what you can afford to pay back each month.
After you have had your card for a while, and kept up with your payments, the company may well contact you with the “good news” that your credit limit has been increased. Again, this is a way the company is trying to get you to spend more money and charge you more interest. Don’t fall for it.
Part of your credit score is determined by how large your balances are. By keeping your spending to less than 70% of the available balance you won’t be showing as “maxed out” and won’t negatively affect your credit score.
Don’t carry open balances on multiple credit cards. Decide on how many cards you need (and just one should be the answer) and decline all other offers. Running open balances on multiple cards is very expensive and can easily have a negative effect on your credit score.
The one good reason to have another card is when you are transferring a balance from one card with a high interest rate to another card with a lower interest rate. If you are not able to pay off your balance, this is a smart move but not as smart as paying off the balance each month.
Another way the credit card companies try to get you to spend more on their cards is by issuing “vanity” cards of a certain color (Gold, Platinum, Black, etc.). These cards may have additional “benefits” like someone you can talk with, but they generally carry very high yearly fees. Other than that, they work the same way as a normal card and are, in my opinion, not worth the cost.
Some credit cards issued by retailers such as Macy’s, Target, and others may be a good idea. This is because some retailers offer discounts only to those who are paying with one of their store cards. But the same rules apply; don’t run an open balance and rack up interest charges.
So there you are. A few sensible ideas on how to handle credit cards that, if taken to heart, will prevent you from falling into debt so deep you can’t get out.
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Author: Robert Sanders – Your credit is a precious asset and should be protected. Learn how to do that with a visit to http://mendingcredit.info for real world advice for real world problems.