Credit cards can be both an incredibly helpful tool and one that can wreak havoc if used improperly. Your whole life, whether you realize it or not, can be greatly impacted by your credit score. Especially when you are trying to make a large purchase, your credit score can either make your life incredibly difficult or incredibly easy.
Using your credit cards to establish a positive credit history is imperative to the health of your credit down the line and the kind of experience that you will have when attempting to borrow in the future. Knowing how to handle your cards is an important step towards proper utilization.
Use Your Card as a Budgeting Tool
It is important to know that you should only do this if you are confident that you can pay off the balance each month. Getting your balance behind means you pay interest fees and those add up significantly over time.
By making all of your purchases on your card, you can see exactly what you’ve spent each month and then pay the balance off. This provides flexibility but also allows you to stay on budget. Not only that, but a paid off balance each month reflects positively on your credit score and allows you to avoid expensive interest rates.
Stay Under 30% of Your Total Limit
Your credit utilization ratio is a huge part of your credit score and basically shows the amount of debt you have to the total available credit. It is important to note: this is across all of your cards, not just the one.
So if you have a limit of $10,000 across two cards, you could have a total of $3,000 in balance across the two and still be at that perfect ratio. Anything above and your credit score could begin to take a hit.
Spend for Need, Not Want
The quickest way into credit card debt is to make frivolous purchases that are unnecessary. Use your cards for things that pop up when you don’t have the money readily available. It acts as a temporary loan to yourself and you can pay the amount back as soon as you have the money available to help avoid interest charges and decrease your overall spending.
Avoid getting into debt by avoiding spur-of-the-moment, unnecessary purchases that can drive your balance up and the tack on the interest rates.