A credit card can be useful if you know how to use it responsibly. It is easy to get into the habit of using a credit card to pay for purchases but it can hurt your credit and make you spend without thinking about your financial choices. You can protect your finance with the following tips from finance experts.
1. Read your credit card agreement
Financial experts emphasize that it’s important to understand the terms and conditions on your credit card agreement. You want to know what to expect when it comes to due dates, interest rates, fees, and other information.
It is easy to spend money using a credit card, but it is much harder to handle the debt that comes after the spending, especially if you’re unaware of the terms and conditions. For example, if you don’t realize what interest rates you can expect to pay, you can easily get into financial trouble by overusing your card.
Find out more at PersonalMoneyStore about money mistakes you might be making, such as never buying anything with a credit card that you can’t pay for in cash.
2. Make payments on the due date
The Consumer Financial Protection Bureau (CFPB) advises you to always make your credit card payments on or before the due date every month. Your payment history is an important factor when it comes to your credit score. Any late credit card payments can affect your credit score. Setting up automatic payments or electronic payment reminders could help you to make sure you pay on time.
3. Stay below your credit limit
It is best to stay well below your credit limit and only use what you really need. Credit scoring models often consider your credit utilization rate when they calculate your credit score. This is the amount of credit you are currently using divided by your credit limit. For example, if your balance on your credit card is $500 and your credit limit is $2500, then your credit utilization for your credit card is 20%.
A low credit utilization score means you’re using less of your available credit and the interpretation of this is that you are doing a good job of managing your credit. Experts recommend that you shouldn’t use more than 30%.
4. Pay more than the minimum
Credit card companies only require you to pay a small minimum payment each month, which is usually up to about 5% of your balance. Paying the minimum amount on your credit card will keep your account in good standing but if you only pay the minimum, you keep carrying a large balance and you pay interest on it.
The interest charges are high and can make it difficult to pay off credit card debt. By paying more, you keep reducing the balance and you will pay less interest.
If you can pay off the whole balance on your credit card every month, this means you won’t pay interest on your credit card purchases. This enables you to use your credit card as a short, interest-free loan.
5. Report a lost or stolen card straight away
If you lose your credit card or it is stolen, you need to report it right away. You want the card issuer to deactivate the card so no one else can use it. If there are purchases on your card that you didn’t make, you need to tell the issuer about them. Many card issuers offer fraud liability so you don’t pay for unauthorized charges if your card is lost or stolen and someone uses it without your permission.