This past weekend a friend of mine gleefully exclaimed “I just got approved for my first credit card”. Without thinking I immediately blurted out “oh jeez please be responsible”, then quickly wanted to smack myself for sounding like her mom. Having gotten my first credit card when I was 18 (and learning a few lessons the hard way), I had the urge to give her a speech about using credit wisely and staying out of debt while building a good credit score. As to not sound like her mother, I refrained from lecturing her and instead decided to give our Talking Cents readers a quick reminder about responsible credit card use. Here goes…
- Golden Rule: Charge only what you can afford to pay each month and actually pay it off each month.
This is the ideal way to use your credit card in a responsible manner. By doing so you’ll build credit and never pay a dime in interest. Treat the credit card like a debit card and deduct each charge from your bank account balance as if you made the purchase. This will keep you from spending more than you have in the bank. Resist the urge to pull out the credit card and swipe it because you want to buy something but “don’t have the money right now”. I’m ashamed to admit I fell into that trap a few too many times in college when money was scarce.
- Always make your payments on time.
Even if you find yourself in a situation where you can’t pay the whole balance, make sure you pay as much as you can (at least the minimum payment) and do so before the due date. Paying on time every month will help you build a good credit score over time. If you find it easier to manage, you can even make more than one payment a month. Set up a payment every other week using your online banking and bill pay if you’d like.
- Plan your purchases.
If you are going to use your credit card to finance a big purchase (like a T.V or a couch) make sure you have a repayment plan that spans a short period of time. Remember the longer it takes you to pay it off, the more you will pay in interest.
- Don’t be tempted by a credit limit increase.
The longer you have the card and pay the bill responsibly, the higher your credit limit will become. Just because you CAN spend more money doesn’t mean you SHOULD. Continue to spend only what you can afford to pay off right away.
- Don’t obtain more credit than you need.
Opening multiple cards in a short period of time can have a negative effect on your credit. Only open the credit cards you need and don’t be tempted by all the offers that come in the mail.
Do you have any tips for using a credit card wisely?