I’m not quite sure why, but some people still cringe when you talk about using a credit card. Maybe it’s because it’s not cash and it’s creating debt, but as long as you pay the balance off by the due date, it’s interest free. These days with the ever need for fraud protection, it can actually make sense to use a credit card for every purchase, and if you’re using often, you will start to see the rewards build up, which is my favorite reason to use a credit card. You can earn miles, points, or dollars back on just making the purchases that you were going to make anyways. As you can see, credit cards are actually good, if you can keep the balance under control, so you can ignore some of the myths that you may have heard.
You Don’t Need One
Sure, can you get through your day to day life without a credit card, only using your debit card? Yes, for purchases, but what about getting a mortgage, loan, car lease, and a good rate at that, with no credit history? The interest rate matters at which you will be paying back with interest, so keep in mind that the higher the APR is, and depending on the balance, by not having the best credit score you are missing out on the best interest rates on the market, costing you money.
Carrying a Balance Helps Your Score
While the use of your card and making the payment on-time will help with the account history, which is a big part of your credit score, carrying a balance will unfortunately only hurt your score. The more debt you have compared to your credit line, the lower your score will be, so it’s important to pay off your full statement balance by the due date so you have the most available credit that you have, and the lowest credit utilization you can, which will improve your score.
Close the Account When You Pay It Off
Debt can be a scary thing, and those that do find themselves in debt, it can take years to come out of, and that’s with a solid payoff plan, so imagine if you are in debt and can’t get out, that sinking feeling of weight on your shoulders every day. Well, when that balance finally is gone and you see the $0, you probably never want to find yourself in that mess again so you close the account. That can actually hurt your score because you are lowering your available credit, so if you a balance on another card it will increase your credit utilization. The best thing you can do is to keep the account open, but cut up the card if you are worried about going on a spending spree again.
Opening an Account Will Hurt
Yes, your score may be decreased by a few points by filling out a credit application for a new credit card, but that doesn’t mean it was the wrong move. The two most important pieces to a credit card, in my opinion, are the APR and rewards, so by opening a new credit card with better APR and rewards than you have now, you actually can be doing yourself a favor in the long run by saving money in interest and gaining free money in rewards.
As Long as You Make the Minimum Payment
The minimum payment is there as a guide to at least make sure you pay that much by the due date to keep the account in good standing. Beyond that, paying the minimum will do little to help you. That minimum payment will hardly chip away at the principle balance at all, probably mostly going toward an interest payment. If you continue to make only the minimum payment it could possibly take decades to pay off your entire credit card balance.
Credit Line Increases Should be Avoided
As you continue to use and pay off your card, you will likely get offers to continuously increase your credit line. I’m not sure why the myth is out there that this is bad, but it does nothing to decrease your credit score, and it only give you more available credit, which by raising your line, it will decrease your credit utilization. You just have to make sure that with all of this credit available that you don’t go on a shopping spree, as it will seem like you have virtually endless amounts of money available to you, until you have to pay it back…