5 Smart Ways You Can Make Credit Cards Work for You
/There are lots of different strategies that can help make your credit cards work for instead of against you. This includes, but not limited to understanding concepts like APR and credit utilization rate – as well as how they and other factors can affect your overall credit score. The more you can apply these concepts to your credit usage, the better your credit score will be, and the easier it will be for you to secure financing in the future.
So with that in mind, here are five simple but smart ways to make this happen.
The Lower the Annual Percentage Rate (APR), the Better
Before you even sign up for a card, don’t just check the interest rates – check the APR. This percentage is basically the interest you need to pay but on an annual basis. The lower your APR, the better off you are. This is why a guide to credit card APR by Petal recommends dividing the number by 365 to compute the interest rate you would incur for a single day. From there, it will be easier to see why you should pay off your balances as much as you can. The sooner you settle balances, the less overall interest you’ll need to pay, which brings us to our next point.
Never Be Late on Bill Payments
Apart from curtailing the interest rate, you’ll need to pay on top of debts, always being on time with bill payments keeps your credit history clean in the eyes of FICO and the credit reporting bureaus. In fact, the worst thing you can do for your credit history is to miss payments, which not only directly damages your credit score, but also makes lenders less likely to trust you with loans. To ensure that you’re never late with any payments, set up automated payment options for all of your cards. This will also contribute to keeping your credit utilization ratio low, which is another key factor to watch out for.
Lower Your Credit Utilization Rate
In a nutshell, your credit utilization rate is the number that determines what percent of your stacked credit limit is in use. For instance, if all your cards combined give you a credit limit of $1,000 and you’ve borrowed $350 across all cards, your utilization rate is at 35%. For the sake of your credit score, you should strive to keep this at 30% or under. You can do this by completely paying off balances as soon as possible or having at least one card with an above-average credit limit. A guide to credit utilization rates by The New York Times offers more advice on how you can keep your utilization at a reasonable percentage. By simply having more credit cards it will boost your overall limit, although that comes with its own caveats.
Think Twice Before Closing Old Credit Card Accounts
Having more credit cards may entail paying for more fees, but their boost to your credit limit could be worth it in the long run. Rather than closing the accounts for cards that you rarely use, you can spread out purchases through these cards instead. Apart from keeping your credit limit high and your utilization ratio low, having older cards also raises the age of your credit history, which also benefits your credit score.
Keep Your Eyes on the Benefits
When you’re spreading out payments over different cards, remember that certain cards come with benefits and points systems that can lessen your overall expenses. Whether it’s free gas, air miles, groceries, or money-back schemes, you can make use of the points systems in various ways. These benefits should be weighed up alongside your credit utilization, your overall balance, and other factors that can optimize your credit card use. If you monitor your benefits as well as the aforementioned factors and strategies, you will be able to manage your different credit cards much better and ensure that they contribute to a brighter financial future.
Article specially written for moneyandmimosas.com
By Bea Grace
