Having a positive record of credit card use and then paying off credit cards — thus establishing a credit history — is an important part of your financial health. After all, a blank credit history can make life almost as difficult as a low credit score — so make sure you understand credit card management. Then use your credit cards for good credit.
How to Pay Off Your Credit Cards
If you’re a beginner and don’t fully understand how credit cards work, you may find that a few mistakes — impulse purchases, skipping a payment or two, or ringing up debt that can’t be paid back — can have a significant impact on your credit score. A low credit score ripples into other parts of life, potentially making it harder to get jobs, rent apartments and, of course, take out other loans.
It pays to understand how credit cards work and how quickly they can get out of hand. Consider the following tips and tricks for keeping your credit card use in line.
1. Pay on time.
And don't spend beyond your means. Treat your card like a privilege, not like a free ticket to live on a borrowed lifestyle.
2. Pay off the entire balance.
The rule of thumb if you’re regularly using a credit card is to always make sure you can pay off the balance every month – don’t fall into the trap of only paying the minimum balance, or you could end up paying thousands of dollars in interest.
3. Keep your old cards open.
Canceling an older card can actually lower your credit score because lenders care about your credit history. The longer you’ve had an account and kept it in good standing, the better.
4. Shop around for the lowest interest rate.
Interest is what the lenders charge you for using their money. When you look at credit card options, the standard interest rate is referred to as the APR, or Annual Percentage Rate. Obviously you should look for the lowest interest rate possible – and always read the fine print. Keep in mind that credit cards with better perks and rewards tend to have higher interest rates or additional annual fees.
5. Know what your grace period is.
Every credit card will have a grace period, which is how many days you have to pay your full balance before interest will be charged. Grace periods normally range from 15 to 30 days.
6. Take advantage of alerts.
Most credit card companies now have automatic notices you can set up to have sent to your email or phone if you spend a certain amount or get close to your card limit. You can also set up payment alerts and reminders.
7. Remember that your credit card use will impact your credit score.
If you use your credit card responsibly and make payments on time, you can build a solid credit history that tells potential lenders you can be trusted. You can get a free credit report at www.annualcreditreport.com. Your credit card company may also have a service that provides you with your score and can break down how financial decisions you make impact the number
