Credit cards are a powerful tool when used correctly and can help you amass a huge pile of debt when abused. Millions of people use them for various reasons. Some people like to gather up the points for rewards while others use them to scrape by at the end of the month and essentially spend money they don’t have. Since all credit card companies report to the three credit bureaus, how you use them, and more importantly pay them, can make all the difference when it comes to the impact on your score.
Responsible Credit Use
One of the best ways to stay on top of your credit card is to use it responsibly. Don’t put more on it than you can afford to pay off at the end of the month, or whenever your statement comes. Where many people go wrong is going on a shopping spree, using the card to buy things they couldn’t otherwise afford. While it’s tempting to hit the shops the day your card comes in the mail, it’s definitely not wise, and you don’t want to start off your relationship with the credit company on a negative.
Instead, put it aside to use either for emergencies only (think of it as a backup fund), or to pay for things you would purchase anyway, and then pay off the bill at the end of the month. Timely payments and low balances will be your best friends when it comes to having a positive impact.
Paying Down Debt
There’s definitely such a thing as too much debt and it can have an adverse effect on your overall score. According to Credit Karma, a good utilization rate is between 20% and 30%. If you’ve already run up your credit card, don’t stress about it, just make plans to pay it down as quickly as you can and stick to your plan. Don’t, for any reason, skip a payment and if you absolutely have to, be sure to contact your credit card company. If you notify them ahead of the due date that you’re unable to make payments, you’ll be surprised at how willing they are to work with you. Another tip to keep in mind is to try to pay more than the minimum each month, to help eliminate debt faster. Your monthly statement should give you a rundown of how long it’ll take to pay off your debt. Use it as a tool to help you eliminate the debt once and for all.
Credit Score Facts
According to Banking Sense’s credit score guide, a good score is considered 699 and above. You can maintain a good credit score with your credit cards by paying them on time—early is better—and keeping your utilization rate low. Another factor that affects your score is the life of the account. The longer you keep your credit accounts open and in good standing, the better impact it has. Skipping payments and running a high balance are two indicators that you’re acting irresponsibly. In some cases, this will lead the lender to decrease your limit, or worse, cancel your account and send it to collections.
Like any form of credit, using your cards responsibly is the key to making them a successful tool in your credit arsenal. Avoid giving into temptation and stick to the point of view that if you don’t have the cash to buy it, save up until you do, your credit rating will thank you.