Credit card tips for good credit
This is a guest post from Victoria Araj from our partner site Zing!/Quicken Loans.
You have a credit card and want to make sure you use it wisely.
You want to keep a good credit score or if it's not the world's greatest at the moment, you want to make improvements to your habits to make that score higher.
Here are some credit card tips for good credit, good habits and more money in your bank account.
Good credit card habits
- It's old hat by now, but pay your bills on time to avoid incurring finance charges and interest that may make it hard for you to make payments.
- Know when your credit card's billing cycle is (typically 21-29 days), the date the payment is due and what the fees are if you don't pay the balance in full or fail to make a payment on time. If your card's interest rate seems insane compared to other cards, shop for a lower rate offer that is more reasonable (but most companies have competitive rates).
- If possible, pay off the balance in full every month to avoid high interest charges. Many people who have credit card debt find that their balances never seem to decrease because they are not only paying interest on the balance, but also interest on the interest itself, making the debt seem like it will never end.
- However, paying in full doesn't help your credit score if you're constantly charging near the credit limit on your credit card. That's because your score considers the account balance shown on your credit report at the time it's supplied by the credit-reporting agency, which is usually the balance from your last statement date. Try to keep your usage to 10% of your credit limit.
- Remember that you have more than one credit score. There are different scoring models such as FICO which ranges from 300-850, or VantageScore, which ranges from 501-990. Both view payment history as an integral part of your score. While there are three credit-reporting agencies: Equifax, Experian and TransUnion, anytime you see your credit score, it could be from just one of these reports, which can change over time. So for example, if you checked your credit score and your FICO says 719, but you apply for a home loan and your lender says your score is 710, it could be because of different credit reporting agencies. And, keep in mind scores are calculated when they are requested rather than just existing and waiting to be retrieved.
- Don't close credit cards thinking it will improve your credit score. If you want to close it because you don't want to use it anymore or you want to avoid overspending, those are justifiable reasons - but don't do it to simply raise your score. Here's why: Utilization is one of the factors in your credit score, which is the ratio of what you owe compared to your card's limit (the lower your utilization, the better your score). It's calculated for each card that you have and considers all of your cards, so closing a credit card that has a zero balance actually excludes that credit limit from the calculation, which can make your utilization higher, which lowers your score. Whew!
- Now that you understand the whole utilization thing, don't ask for a reduction on your credit card's limit for the sake of improving your score, as this can push your utilization higher as well.
Credit card tips that save you money
- Record your credit card activity. A restaurant meal here, new iPod downloads there and it can be easy to rack up a sizable bill by the end of the month. Jot down your activity on paper or online so you don't overspend or put yourself in a spot where you cannot pay the balance in full and end up owing interest.
- Keep your credit card receipts and compare them with your monthly bill. When you purchase something and the cashier asks if you want the receipt with you or in the bag, say that you want it with you. Put it in your wallet so it doesn't get lost or thrown out by mistake. This is a good habit whether you need to make a return of the item later or simply want to check it against your monthly statement.
- Life happens. You missed the deadline for making a payment. Maybe you were out of town, in the hospital or lost your monthly statement. Instead of just accepting the penalty fee, contact customer service and explain your situation and ask if they can waive the fee. Once they see your history with the account they are more likely to waive the fee if you are in good standing. Do not make a habit of this - it can only be done as a courtesy for being a loyal card user who has a great payment history and happened to make a one-off error.
- If you are a frequent international traveler, you might be paying quite a bit of money in what is called a foreign transaction fee. Every time you use your credit card or make a withdrawal at an ATM you are charged a fee, typically up to 3 percent per transaction (which definitely adds up). There are cards that do not have this fee, but you'll have to do some research and call a service representative or search online about their specific fees.
Having a credit card and using it wisely allows your credit profile to demonstrate your ability to be fiscally responsible. By employing some of these credit card tips for good credit, you can make sure your credit card is only a tool used strategically and not a crutch on which you rely for everyday consumption.
Published 07/05/12 (Modified 11/20/13)