Are you looking to increase your credit score? Scared credit cards will sabotage that effort?
Fear not, credit cards can actually help your financial future and credit score if used correctly. Self restraint and knowing the do’s and dont’s will make credit cards a powerful tool in your financial toolbox. With proper use, credit cards can increase your score and enable you to purchase a home or car with a better rate in the future.
Do get the right card….many cards give cash back and/or rewards for purchases. Some give interest free payments for up to a year for opening an account. Look at what the card offers to see what works best for you. Maybe you have a higher interest rate card and are offered an interest free balance transfer with a new card. Transferring the balance could save you hundreds of dollars over the first year.
Do pay on time…35% of your FICO credit score is determined by payment history. Make all your payments on time, every time. Life happens to us all and most will miss a payment or pay late at some point. The best thing to do is call your lender if you paid a little late, and ask for a waiver of the late fee. If you have a solid payment history most will waive that one-time late fee. It is worth a phone call.
Do ask for a better APR….Only 20% of card holders ever ask for a better interest rate. One phone call can save you hundreds each year. Call every credit card issuer you have and ask for a reduction. Studies show 80% of the time they will lower your APR if you are current on your payments and simply ask.
Don’t max out your available credit…Try to keep your balance under 30% of your available credit. Lenders are critical of those who carry maxed out credit cards or only have little credit available. Your future borrowing power is greatly impacted by your Debt Ratio (your credit balance divided by your credit limit). Buying a house or car can be derailed if your Debt Ratio is too high.
Don’t Close Old Credit Cards…15% of your FICO score is credit history. The longer you have had credit card history, the better. The disadvantage of closing credit cards is, with less available credit, your Debt Ratio will automatically rise, which as discussed earlier, is not wanted. Keep the old cards and carry zero balances for a better debt ratio, longer history, and larger available credit.
Don’t forget to check your credit….You’re entitled to one free report each year from each bureau..Experian, Transunion, & Equifax. Go to annualcreditreport.com to order yours for free. If you see anything that is not correct, contact them right away to inquire about the error.
I hope these tips help you use your credit cards to your advantage in your financial future.