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So if you’ve been reading any of my financial posts you’ll know that I didn’t always make the best decisions with credit cards. I maxed them out, overused them, had too many, had ones that didn’t offer any rewards, etc. So I want to take what I’ve learned in my 17 years of having credit cards and share with you why credit cards are good and how to use them properly. I am not an expert, but I have taken my score from the dumpster to excellent and kept in there for several years.
Why Credit Cards Are Good:
- Credit cards build credit: If you are new to the credit game a credit card is a great way to build up your credit. Having a low credit limit card that you pay off every month is a great option. Also a great option for college students or younger adults looking to build credit.
- They give you a little bit of a cushion: If you need something like groceries, gas, etc and you don’t get paid until the next week it can be helpful to have that card. Just don’t put on more than you can pay off.
- They can help you save for things like travel: What I mean by this is if you use a credit card that can give you airline miles or hotel points you can go on a vacation entirely paid for. Fun fact: we haven’t paid for a flight in over 5 years. We have used miles for every single flight we’ve taken since we’ve been married.
How To Use Them Responsibly:
- Don’t max them out: I mentioned credit utilization in an earlier post. But basically you don’t want to use more than 30% of your revolving credit. So if you have a $10,000 limit you should only use up to $3,000.
- Pay them off monthly: This is the biggest piece of advice I wish I had known earlier. PAY OFF YOUR CARDS. One of the worst things you can do is carry a balance on your credit cards. Especially only paying the minimum monthly payment but continuing to charge on the cards. (Been there, done that- saw the credit score plummet).
- Look for hidden fees: Hidden fees can really surprise you. These fees are annual fees (a fee you are charged usually once a year just to have the card). APR (annual percentage rate which is the interest you will pay on things annually.) Cash advance fees (if you use your credit card to get cash there is usually a HEFTY fee of 3-5%). Basically know as much as you can about any fee associated with the cards you are using and know how to avoid as many as possible.
- Stay away from store cards: Y’all this was a big thing for me in my younger days. Victoria’s Secret, Banana Republic, Gap, Nordstrom, etc. They all offered the same sweet talk: oh sign up and we will give you XYZ discount today. Well, you don’t have to ask me twice. But I didn’t know NOT to. This is a totally personal opinion but in my experience, they have higher interest rates, lower limits, and very few advantages. You can read a lot about them here.
Random Facts About Credit Card Usage:
- When you apply for a NEW credit card it will cause a hard inquiry on your credit.
- There are a lot of benefits associated with using credit cards: such as price protection, purchase protection, trip insurance, luggage protection and more. Read all about them here.
- If you have cards you don’t use a lot but you’ve had them for a while try to charge one thing a year and pay off. For example say you have a low limit card that doesn’t have a ton of benefits so you’ve just stopped using it. You don’t want them to close it (that can hurt your credit score). So charge one tank of gas or one trip to the grocery store once a year and pay it right off. That way the card stays active and helps your overall credit age. The longer your credit age is the better your score can be.
Here are a few helpful articles from Lexington Law that will give you a ton of info about credit cards and how the can affect your credit. Lexington Law is an amazing resource for credit cards and credit issues or advice in general. If you find yourself in a rough spot with your credit absolutely check out their services.
I would love to know your experiences good or bad with credit cards. Discuss below!