Good Credit Card Strategy

Credit cards, both a blessing and a curse, are an important slice of your overall financial pie. It can be tempting to go wild with this extra purchasing power, but that will only end badly for you and your credit score. There is a way to be responsible with your credit card and knowing how to manage it can save you a credit report full of headaches later. As with most financial responsibility, proper credit card strategy is all about knowing the ins and outs, staying on top of the details, and planning ahead. Here’s a your plan of attack.

Check Your Credit Score
Your path to a new credit card could be cut off really fast if the company issuing the card sees you as a huge risk. You’re entitled to a free annual report, so you can see your credit worthiness before you start looking for cards, and see what kind of customer credit card issuers assume you’ll be. Based on the information in there (hopefully it’s accurate), you’ll be better off in your research on credit cards, since you can then hunt down cards you’re more likely to be approved for. Don’t worry if your credit isn’t perfect, there are issuers who are still willing to offer cards to people with fair and even poor credit.

Know Your Credit Needs
The number one rule of credit is understanding that this isn’t free money and that there’s a string attached every time you swipe. It’s important to be honest with yourself about why you want a credit card in the first place: Do you hope to establish more credit history? Is it for emergencies? Is it for big purchases you don’t want to drop cash on right away? Figuring this out matters because it will dictate whether you’ll be able to pay off your balances every credit cycle, or whether you’re okay with incurring a finance charge—interest on the money you spent with the card—for balances that carry over. We’ll talk about why that matters next.

Focus On The Numbers
APR: A good reminder that credit cards aren’t a windfall is that really important number called an APR, the annual percentage rate. It’s the interest rate you’ll pay for purchases that aren’t paid off during the credit grace period, usually a 25 to 28-day cycle; it’s a good figure to use when shopping for cards. A lot of cards will offer a promotion to new members where the APR is 0% for several months, before the regular APR takes effect. You should know the APR, how it’s calculated, and whether it’s fixed or variable, before you sign up.

Paying off balances month to month is the most responsible way to manage credit, and to avoid interest added to your balance. That’s not always possible, but the second-best scenario, is keeping the balance low, if you’re going to carry it. Also, if you are definitely going to carry balances, get a low-interest card or one that has a no-interest period that’s long enough for you to pay off the balance.

Credit Limit: Be aware of your credit limit. It’s a number you want to stay far away from, since the closer you are, the more interest is being calculated on your balance. Going over it can tank your credit score and it can show up on your credit report, especially when repeated, if the issuer chooses to report it to credit bureaus. You can guarantee, though, that you’ll incur overcharge fees.

Fees: The late fee amount is obviously one you should know, in case you miss a payment. Also, some cards charge you an annual fee in exchange for member rewards, like earning travel miles on purchases, reward dollars, and higher percentages of cash back for certain buys. Is it worth it? It depends on how often you think you will use the card and therefore whether you’ll even be able to earn the rewards.

Ultimately your credit score is calculated by looking at the amount of debt to available credit you have. So the lower amount of debt on those credit limits the more positively it will reflect on your credit score.

Use Your Benefits - Within Reason
Your card’s benefits may look great on paper, but don’t go out of your way to rack up debt if you don’t need to. If you’ll earn rewards on things you buy regularly like gas and groceries, it might make a lot of sense to pay for those items with your credit card. Some cards will also offer insurance coverage for rental cars if you use the card to rent a vehicle and turn down the car rental company’s proprietary insurance.

While mileage and travel benefit cards might seem tempting at first, know this, actually executing on those benefits can be a big pain in the ass. Ultimately standard cash back cards offer you the best straight-up benefits, even though the increments may seem small at first. But, if you’re a regular monthly or weekly traveler for work, the right travel-based card could lead to some sweet benefits.

Go Auto
Whether you use your card issuer’s or your bank account’s online system, you should create a recurring payment for your credit cards if you carry balances, so that you never forget to send a payment and get charged a late fee. Always pay more than the minimum, and paying more than the minimum plus the interest is ideal. Your statement will inform you of how long it will take you to pay off your balance if you pay just the minimum amount, and recommend an amount to pay to finish off the balance in a much shorter timeframe. The app Ready For Zero is also a great tool for managing your debt.