Credit cards can be a double-edged sword. And while these plastic cards are perfect for building credit and meeting emergency expenses, they also open the door to debt.
Getting your first credit card as an adult is a major milestone, and you might celebrate this milestone with a shopping trip. There’s nothing wrong with the occasional indulgence. But if you’re not careful, bad credit habits can follow.
Your credit habits have a direct impact on your credit score. And if you want to purchase a home, buy a car or obtain other forms of financing in the future, there are six habits that you need to adopt today.
1. Register your credit card online.
Practically every bank that issues a credit card offers online banking, wherein you can register and manage your account online. By taking advantage of this feature, you can monitor your account and track your spending 24 hours a day, seven days a week.
Sure, you can always wait for your statement to arrive in the mail or call the customer service number. But if you want to stay on top of your account and learn your account balance at a moment’s notice, online account management is the answer. You can download your credit card company’s app directly to your phone, and even pay your bill online.
2. Set up email reminders or alerts.
Have you heard the saying “out of sight, out of mind?” Well, if you’ve ever paid your credit card statement late, you might blame tardiness on this popular expression. You might open your statement and make a mental note of the due date. But if you don’t give the statement a second thought, you can inadvertently miss your due date. There is a simple solution.
The easiest solution is paying the statement as soon as it arrives, but this isn’t always realistic. Another option: set a reminder on your computer or phone calendar. Thus, you receive an email or other notification a day or two before the statement is due. It’s the best way to never miss another payment.
3. Pay your balance in full
Ever wonder how others can use their credit cards regularly, but never acquire a ton of debt? The secret is simple – pay your credit card balances in full each month. This straightforward credit card habit has advantages that some people never consider. Not only will this method keep your debt to a minimum, but the less debt you owe your creditors, the higher your credit score.
A higher credit score helps you qualify for other credit. Plus, you’ll be eligible for lower interest rates – which increases purchasing power. Of course, you can’t pay your balance in full if you go overboard each month. A rule of thumb: only charge what you can afford to pay off.
4. Keep your credit cards active.
If you don’t use credit cards and choose cash as your primary form of payment, you might give yourself a pat on the back. But don’t get too excited. Giving credit cards the boot might keep your debt to a minimum, but it does nothing for your credit score. Here’s why.
You’re probably aware that your credit card companies notify the bureaus each month and report your most recent credit card activity. The information reported can either break or make your score. If you don’t use your credit cards, there’s nothing to report. This may not seem like a bad deal. But in actuality, an inactive account can cause your credit score to plateau. You want your creditors to report information on a regular basis. If not monthly, at least every few months. Dust off your old credit cards and make small purchases every few months, and then pay off these purchases in full.
5. Keep your accounts open.
Maybe you’ve decided to take charge of your credit and get rid of a few accounts. Perhaps this is the only way to control your spending. But if you want to practice good credit card habits, keep your accounts open.
Closing an account – especially an older account – can have a tremendous impact on your credit score. The length of your overall credit history makes up 15% of your credit rating. And if you cancel an older credit card, this can knock years off the length of your credit history, thus triggering a lower score. But if you’re adamant about lightening your wallet and determined to cancel a few accounts, start with your newest accounts.
6. Borrow cheaply.
What’s the interest rate on your credit cards? Don’t feel bad if you don’t know the answer – many people can’t answer this question. But knowing what you’re paying your creditors each month is key to responsible credit card use. Interest is basically the price you pay for having access to a credit line. Rates vary depending on your credit history and the bank. But like most things in life, interest rates are negotiable.
If you have good credit and pay your bills on time each month, you might be eligible for a rate around 10% – 12% or lower. Contact your creditors and ask for a lower rate. Sometimes, they’ll grant this request on the spot. If not, start shopping for a new creditor.