There are some smart ways of using credit cards so that you can maximize benefits and reduce risks of debt. Here is a list of do’s and don’ts recognized to be most practical tips that may help you get the most out of your credit cards.
DO
Shop Around For Credit Cards: Credit cards carry different rates, fees and terms. When you look for a new credit card, utilize the internet to do some research in order to find out the most favorable terms and fees.
Apply For As Many Cards As You REALLY NEED: Every time you apply for a new credit card, the creditors will pull a hard credit inquiry on your credit report and credit score, known as the “hard pull”. Hard pulls hit your credit score. Unlike rate shopping for loans, hard pulls for credit cards in a short period of time are not allowed to be bundled as one pull. So you want to be very cautious when facing the temptation of opening a new credit card account to just get a 10% discount on a single purchase.
Negotiate For Low Interest Rates: The interest rate calculates the cost of carrying a balance on your credit card. The higher your interest rate is, the more “expensive” it is for you to use your credit card. Your interest rate may start low and increase over time. Fortunately, you may be able to negotiate with your creditors to lower the interest rate. You can do this by contacting the card companies and ask them to reduce your interest rates. If you have held the card for a long time and have kept a descent payment history, it is likely that they will do so. For more information, please see the article Negotiate a Lower Interest Rate.
Restrain Your Spending Within 30% Of Your Credit Limit: Credit utilization rate which is the credit used divided by the credit limit is an important component in your credit score. Therefore maintaining a low balance, namely lower than 30%, preferably 10% of your credit limit can effectively prevent your score from dropping, or even help boost it. Moreover, lower balances are easier to manage and offer less risk of inflating debt out of control.
Pay On Time, All The Time: When it comes to payment, two most important rules are: first, pay on time; and second, pay more than the minimum payment, or even better pay in full. Skipping a small credit card payment can sabotage your credit score and the late payment record stains your credit report for 7 years. Paying off as much balance as possible also helps you establish a good credit history. Every effort you put in managing your debt payment will pay off in the future with an excellent credit profile that helps you get low interest rate credit cards or loans.
DON’T
Don’t Simply Cancel the Credit Card Accounts that You Do Not Use Very Often: Closing credit cards can potentially increase your over-all credit utilization rate and hence hurt your credit score.
Don’t Max Out Your Credit Cards: Since high debt-to-credit ratios adversely affect your credit score, you don’t want to have your balance exceed 30% of your credit limit. Some banks can reduce your credit limit without warning you. If your limit falls below your balance, that not only will hurt your credit profile, but also charge you an over-the-limit fee.
Stay Cautious About In-Store Credit Cards: They mostly demand high interest rates. When you apply for new cards, your credit score will get hurt by hard pulls as well.
Don’t Use Your Credit Card To Buy Things That You Cannot Afford: Credit cards are never sources of free money. If you make a purchase with debt and you are not sure if you will be able to pay back, chances are you will not be able to pay back. Debt that gets out of control can devastate your credit score, credit history, and at worst, your lifestyle.
