Managing Your Credit Wisely
Credit card offers that show up in your mailbox can be tempting, especially if they offer perks. But do know the real cost of using credit? Before you get that first credit card or add another card to your wallet, ask yourself these questions to determine the impact it will have on your budget and goals. This will help you to understand if you are managing your credit wisely.
Can you pay off the balance each month?
Just because you qualify for a card doesn’t mean you should get it. Many cards carry a high interest rate and may also charge a hefty annual fee. Even when a credit card has an attractive interest rate and no annual fee, it may not be a good idea for you. Financial experts agree that if you can’t afford to pay off the balance monthly, you shouldn’t use credit cards. Deciding to pay off a balance monthly helps you keep spending under control and allows you to avoid costly interest charges.
Do you need to establish credit?
In some cases, credit cards are necessary. If you have no credit history, a well-managed credit card can help build a good credit score. If you have just one card, adding another can also build the score. Each month, Transunion and Equifax report the details of your credit card management. You earn the best score by paying the bill on time and by keeping the total balance under 35% of your credit limit. It’s also a good idea to keep credit card ownership to one or two cards.
Are the rewards really rewarding?
Rewards cards are credit cards that provide special bonuses. Travel perk cards are very popular, offering frequent flyer miles or other incentives. Before you commit, figure the cost of use for the card you are considering. If your card’s perks will save you $200, it isn’t much of a deal if you must pay a $200 annual fee to own the card. You may think that a store card and its accompanying perks are a good idea. These cards usually carry a very high interest rate and can lead to over spending. Do the same budget analysis you would for other cards you consider, figuring the effect a store or perk card will have on your credit score.