Managing credit cards is one of the most important yet trickiest aspects of personal finance. When managed poorly, they can wreck havoc on your financial health. Managed properly however, they can make your life a whole lot easier. Here are seven tips for smartly managing credit cards.
Use Under 30% of Your Limit
Credit experts and credit agencies agree: It's best to use less than 30% of your credit at any given time. In fact, one of the largest factors for calculating your credit score is what's called your "Utilization Rate," the% of credit that you've used. Keep the number under 30% and you'll improve your credit score and improve your overall financial health.
Keep Your Oldest Card Open
Keep your oldest credit card open and never close it. Even if the limit is low or the interest is high, keep it open anyway. The length of your credit history plays an important part in calculating your credit score. The longer you've had your oldest account open, the higher your score. So that account should never be closed.
Use Your Rewards
Know what kind of rewards you can get with your card and choose your cards accordingly. Of course, your primary concern should be a low APR. Once you have that however, there are still a number of different cards you can choose from. If you fly frequently, go with a frequent flyer card. Otherwise, go for a cash-based rewards card or a gift-based rewards card.
Pay Major Expenses on Credit Cards
If you have a good rewards program, try to get all your major expenses on credit card. Some landlords will allow you to pay your rent on credit card. Some auto shops will allow you to make your car payments on credit cards. Just make sure that if you manage to get your major expenses on credit card that you pay it off every month. That way you earn major rewards points at zero additional cost.
Check Your Credit Report Yearly
Check your credit report every year to see if there are any unauthorized charges. Even if you have not opened any new accounts, you should go over your credit report carefully every single year. Identity theft and other credit mishaps can severely damage your credit if you're not on the lookout.
Ask for Increases
Get in the habit of asking for credit line increases every year or so. If you've been a good customer and paid your bills on time, there's no reason credit agencies should say no. Increasing your credit not only gives you more leeway if you ever need emergency cash; but it also lowers your utilization rate by increasing your debt ceiling.
Never Spend More Than You Earn
Perhaps the most important rule of using credit cards is to never spend more than you earn. Credit cards give you the ability to do that, but only for a short time. If you want to enjoy long term financial health, you need to be carefully watching your finances to make sure you really are not spending more than you earn. If you're not watching it, it's easy to slip up and think you're doing well financially when you're actually racking up debts.
These seven tips will help you keep your credit score high, your debts low and even help you land extra rewards from your card.