Best Practices for Credit Cards
What is the Money Date? A weekly time to check in. 3 things we review and update: 1. Spending 2. Earning 3. Savings
Using credit cards is a way of life for many of us. Yet so many folks still struggle with the best way to use them. These financial vehicles are not evil. Many of us like to earn rewards (points, miles, cash back, etc.)
Let’s review a few best practices of how you can do better:
Pay off your balance every month and pay it on time. Helps avoid late fees and poor credit score.
The FICO score is the most commonly used credit score across the finance industry and is made up of five key components.
Payment History (35%)
Credit Utilization (30%)
Length of Credit History (15%)
New Credit (10%)
Credit Mix (10%)
Keep your balance low
One way to keep your credit score healthy is to keep your credit utilization ratio under 30%. This credit utilization ratio is the percentage of total available credit that you’re using. For example, if your limit is $1,000 you should keep your balance under $300.
Monitor your monthly statements
I use mint.com for looking at all my transactions. But I also review each statement at the end of the month. You can usually set mobile alerts if you don’t regularly check your credit card account. This also helps you automate the fraud detection process.
Credit cards are dangerous when used irresponsibly, but they are powerful tools to help your finances when used wisely. To maintain a high credit score, follow the best practices mentioned above: always pay on time, always pay in full, and keep a low balance on your card.