You might not realize what a big impact your credit card purchases have on your credit score. But they do! The better you manage your card and the more responsible you are with them, the better your credit score will be.
Not sure where to begin? Don’t worry. You are not alone. Here are some great tips on how to use a credit card responsibly.
Avoid impulse buys.
There’s no specific margin for what’s too many, especially from a financial perspective. As experts at SoFi rightly point out, “how many is “too many” depends upon how much your impulse purchases cost and how easily they fit into your budget.”
- Avoid impulse buys.
- Avoid shopping when you are tired, angry, hungry, or bored. The latter two will often make you buy things you do not need just to occupy your time and/or emotions, respectively.
- Remember that there is no such thing as a “deal” if it is something you do not need or would normally pay full price for anyway.
Pay more than the minimum.
If you have a high-interest credit card, then you should pay more than the minimum.
This will help avoid interest charges and allow you to pay off your debts faster. You can also use this method to build good credit history or avoid paying interest on purchases of small value.
Read the fine print.
- Read the fine print. Credit card agreements are long and complicated, so it’s important to do some research before signing up for a new card. Make sure you understand all of its terms and conditions, including:
- The annual fee (if there is one)
- How interest rates are calculated
- The grace period (the time between when you make a purchase and when you have to pay it off)
Track your spending.
To make sure you’re not spending more than you should, it’s important to keep track of your spending. There are many ways to do this. You may use a budgeting app like Mint or Quicken or even just a spreadsheet on your computer. Another option is to use an old-fashioned paper notebook and pen if that floats your boat!
If you’re using software or an app, when making purchases in real-time, take note of them immediately, so they get recorded in time for the next month’s bill cycle. If using paper and pen, be sure to write down every purchase as soon as possible after making it so that all information is fresh in mind when recording it later on (and don’t forget receipts!).
Pay bills on time, every time.
Your credit score depends highly on your payment history, so it’s critical to pay all of your bills in full and on time. If you have a student loan or car payment that you can’t afford, contact the creditor directly about options for lowering interest rates or extending loan terms.
If you’re not sure how much of a debt load to take on at any given time (or if it’s wise to take out any at all), check out this article from Money magazine that outlines three different scenarios when taking out loans makes sense: “When You Need Cash,” “How Debt Can Be Good” and “When It’s Better Not To Borrow.”
Remember, credit cards are tools. The right tool can make your life easier, while the wrong one will only cause trouble. You can have a great time with credit cards if you use them responsibly and avoid some common pitfalls that could wreck your finances. If you’re not sure where to start, check out these tips for getting started with credit cards.
