Credit cards are great tools for building credit and earning rewards for spending you anyway. They can make your life easier and provide valuable benefits such as purchase protection or extended warranties.
But credit cards can also give you a lot of trouble. Here are four credit card rules to follow to make sure that doesn’t happen to you.
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1. Avoid paying credit card interest
Credit cards typically charge high interest rates, with many cards offering an APR of 17% or more. You don’t want to pay interest at such a high rate if there is a way to avoid it, especially when there are cheaper borrowing options, such as personal loans.
If you are going to use a credit card, don’t charge more than you can afford to repay. If you need to make a larger purchase that you can’t pay off in one billing cycle, consider using a 0% APR card or other more affordable loan to do it.
2. Always pay your credit card on time
Credit card companies report your payment history to credit agencies. A positive payment history can help you achieve a good credit score, which improves all aspects of your financial life. But a missed payment can sit on your credit report for years and seriously damage your score the whole time.
To avoid interfering with your ability to borrow, find a job, or rent an apartment, do everything possible to pay your bills on time and avoid being 30 days or more late. If you’re going to miss a payment, call your card issuer and find out what options you can have to avoid ending up with a negative rating on your credit report.
3. Choose a rewards program that suits your spending
Credit cards often offer valuable rewards. There is little reason to let this go. Look for a card that offers rewards that interest you, whether that’s cash back, miles, or points to redeem for merchandise.
And try to find one that rewards the spending you do the most. If you spend most of your money on gas and groceries, for example, it’s a good idea to get a card that offers rewards at gas stations and grocery stores.
4. Don’t Maximize Your Credit Cards
When you open a credit card, you are given a credit limit. This is the maximum you can charge at one time. Try to stay well below. Ideally, you should never use more than 30% of your available credit.
This is because the card companies declare how much of your line of credit you are using, and it is a major factor in determining your credit score. If you max out your cards or if your credit utilization rate exceeds 30%, it can lower your credit rating and affect your borrowing capacity.
Problems can arise that make it difficult to follow the four rules, but if possible, follow these rules to make sure your cards don’t harm your credit report. You want them to help you rather than hurt your financial situation.