We all have been out shopping and had someone tell us, “You know if you sign up for our credit card today, you can save 20%.” Sounds like a good deal. Who doesn’t like to save? Or you’ve passed a table in college where if you signed up for a credit card, you could get a free blanket with your university logo on it. So tempting! So...should you do it?
Credit cards are a tool that should be used wisely. There are some benefits to them, and there are some pitfalls that we want to help you avoid as we all work to build our financial power.
BEST PRACTICES:
1. Credit cards help you demonstrate trustworthiness with money.
Lenders look to your credit report to determine if they can trust you to repay a loan. For example, if you are trying to purchase a home or buy a car, you will need to show that you have had loans and have paid them back or are in the process of paying them back. Having a credit card that you’ve made regular payments on helps demonstrate this.
2. Get a credit card with a rewards program.
Credit card companies are competing for your business. It does not make sense to have a credit card that does not offer you rewards. Some common rewards are “cash back” - getting money credited to your account for money that you’ve spent and deferred interest programs - not having to pay interest on a credit card for a certain amount of time. Do just a little research and you’ll see what your options are.
BEWARE!!
1. Credit cards make you think you have more money than you do.
Just because you are approved for a $10,000 credit limit does NOT mean you should charge $9,999 on that card. Paying for something on a credit card is not actually paying for it. You are taking out a loan for that amount and then being charged more than the cost of that item to own it.
2. Always pay more than the minimum balance.
Simply put, credit cards are set up so that the company makes money off of you. Interest is charged each month based on the full balance owed on the card. This isn’t a bad thing; they are offering you a service and they should be paid for it. However, minimum balances are selected so that you can never quite pay off the full balance. Always pay more than the minimum so that you can eventually have a $0 balance on the credit card.
Share some of your best practices and lessons learned with our Two5Five community.
Comments