Believe it or not, credit cards do have many benefits. If you are a SMART credit card user, then you can take advantage of their cash back, bonus points and even airline miles. You can also use credit card to increase your credit scores. Unfortunately, many people get into financial trouble by depending too much on their multiple credit cards. So as a credit card user, you should follow the guidance listed below so that you can be SMART about credit cards.
Zero Balance Month After Month
Why are you not paying off your monthly balance? If you cannot pay off your monthly balance on any amount that is accruing interest, then you should not carry credit cards at all. This means you should not make any purchases that you cannot afford. I was surprised to hear Federal Reserve point out that more than 40% of US household carry credit card debt. All these 40% need to be SMART credit card users and follow my guidance.
Several More Guidance on Credit Cards
- Do not make your payments past due date! Late fees can be as high as $40 per incident and can really add up fast as you consistently miss their due dates. Besides the late fees, late and missed payments can even lower your credit score, which in turn can increase your interest rates and impact future loans.
- It always good to find new credit cards with lower interest rates. But find out first how much the credit card company will charge for transfer if you decide to transfer your balance. Also, it is important to make sure you make the transfer electronically so that you do not have to pay interest on both on new and old credit cards. Most of the time, low-interest introductory offers only apply to the transfer and does not apply to the new purchases. So, be careful!
- Do not carry more than 3 or 4 credit cards. Applying for many credit cards will hurt your credit score. Also, keep in mind that closing credit cards within short time period will decrease your credit score.
- You might be tempted to sign up for a credit card that gives rewards that sound too good to be true, e.g. Chase Credit Card giving $150 to anyone who qualifies. What they don’t tell you up front is that these types of credit cards carry high APR and you have to spend certain amount to earn it.