How To Use Your Credit Card To Establish A Good Credit History
How To Use Your Credit Card To Establish A Good Credit History
by: Carmin Olivier
If you're young and just starting out credit cards are certainly convenient and can
help you establish a good credit history, which will be important when you need to
make major purchases down the road. However, carrying a credit card comes with big
responsibilities. Here are some tips on how to use your credit card wisely.
Choosing the right credit card
When selecting a credit card, you should consider your own needs. For example, if
you're going to be carrying a balance (not paying off the entire bill each month)
then it is imperative to seek out the lowest interest rates that you can find. But
you may be limited by a few circumstances, one of which is your paycheque. Some
credit cards require a minimum income level or charge an annual fee.
High limit credit card could be a recipe for disaster. Signing on the dotted line is
fun. No money comes out of your bank account and no cash comes out of your wallet.
Shopping has never been so easy. That’s why when starting out the best credit cards
are the ones that have low spending limits, unless you can afford to pay for any of
the charges that are made on it.
Just about all credit cards offer some type of incentives such as rewards points or
cash back incentives. This is done for obvious reasons. The most common of which is
to entice the cardholder into using it more often. Overall it is a pretty good deal
to receive rewards for credit card charges as long as you bear in mind that this is
not free money. Whether you realize it or not, you have already paid for those points.
Managing your account.
Managing your account online is a great feature; just about every body has access to
the Internet and can easily access their credit card statements.
Studying your credit card statement
You'll receive a statement that details what you've bought and what you need to pay.
The purchases you've made will be tallied, just like on a bank statement. You'll need
to pay attention to:
· The amounts - Make sure your purchases are listed correctly by comparing the
amounts to your own purchase receipts. Doing this will help you understand where
your money is being spent and help you adjust your spending patterns.
· The balance - If for any reason your statement seems a lot bigger than you
thought it would be, you may be heading into a danger zone. Keep your balance
within a range you can afford to pay off every month. And remember to save
some credit for emergencies.
· The minimum payment - You need to pay this amount each month toward the entire
outstanding balance. Making substantial payments every month will help you keep
the interest under control.
· The purchase interest - This is how much you're paying on purchases that have
not been paid off in full by the payment date. Whenever you carry a balance
forward from the previous month, you'll pay this monthly interest.
· The payment date - When you are busy and responsible for many bills, it's
easy to forget when everything is due. However, paying bills on time is crucial
to maintaining a positive credit record. Over time, it could mean the difference
between being approved or denied for other credit, such as a car loan or a
mortgage. Many credit card companies advise making payment a few days before the
specified payment date to ensure receipt. Another option is to pre-pay your
bills using telephone or Internet banking.
Staying out of the danger zones
It's a good idea to avoid the following, despite the temptation:
· Cash advances - You'll pay interest on a cash advance from the moment the
cash is in your hand. You may also be charged a service fee. Cash advances
are great for emergency cash but avoid using them as an income supplement.
· Hitting your credit limit - There are many reasons why hitting your credit
limit can be dangerous. If you don't have the money to cover your purchases,
you will definitely feel the discomfort that a large balance brings.
· Impulsive purchases - Think about the purchase and why you are buying. Do
you really need it? Don't let the ease and convenience of credit be the driver
for purchasing the item.
· Overusing the card - Credit cards aren't a substitute for saving and
budgeting. When you can't afford to go to the movies, don't think of your
credit card as a saving grace.
Use Your Credit Card as a Tool
A credit card can be a tool that you use to your advantage. If you play your cards
right you'll prove to creditors that you are a person who can take care of business
in a mature and responsible way. And a few years down the road, you'll have a good
credit history. Now that's impressive.
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