How to Use Your Credit Card Wisely

By M.J. Kelly

  • Overview

    When you are approved for a credit card, you have an opportunity to begin to establish a credit history. If used wisely, a credit card can help you obtain a good credit rating which will qualify you for favorable interest rates on installment loans, mortgages and other credit cards. Utility companies, landlords, employers and insurance companies all look favorably on consumers with good credit scores. Use your credit card prudently by following these tips.
    • Step 1

      Pay your credit card bill on time. Late payments not only incur late fees, but the tardy payment will be reported to one or all of the 3 main credit reporting companies. Experian, Equifax and TransUnion will each maintain information reported to them by your creditors. A late payment is a negative that may remain on your record for up to 7 years. Your interest rate may automatically increase if you make a late payment.
    • Step 2

      Avoid finance charges by paying you credit card balance in full every month. Your credit score will continue to rise as you demonstrate your ability to manage your spending and live within your means. If you cannot pay the full balance, pay more than the minimum due and discontinue using the card until your balance is back to zero.

    • Step 3

      Maintain 2 or 3 credit cards over many years. When you open and close credit card accounts frequently, your credit score will suffer. If you prefer to use one card for most purchases, buy 1 or 2 small items with your other cards just to keep them active.
    • Step 4

      Use credit cards that offer you something in return for your business. Cards that offer cash back, based on a percentage of your monthly spending, provide a convenient way to make a few dollars. Rewards cards that offer points for dollars spent are attractive because you may cash in those points for travel or merchandise. Use only credit cards that do not charge an annual fee.
    • Step 5

      Be cautious when using convenience checks associated with your credit card. You may be enticed by a low interest rate attached to the convenience checks, but you will usually pay a transaction fee of 3 to 4 percent of the amount of the check. Avoid using your credit card for cash advances which carry high fees and interest rates.
    • Skill: Moderate

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