You have to have credit cards, there is just no way around it. If you want to have a good credit score, you need to have a well rounded credit profile and revolving credit needs to be a part of that profile.
The problem is that credit cards are an evil temptation. As Americans, we have always loved easy money and a credit card is just that. This has led to many people getting into terrible credit trouble. This does not have to be you, as long as you are careful.
Here are some steps that you can take in order to keep your credit cards under control.
Keep Your Balance Under 10 Percent
You have probably heard that you should keep your credit card balance under 30 percent to have good credit utilization. While this is true, why settle for good?
If you want the best credit score, keep your credit card balances under 10 percent. If you have 3000 dollars in credit, you should be using 300 dollars or less.
By having a high amount of available credit, you are telling the credit bureaus that you know how to handle your credit. You are also showing them that you are not using your cards for regular expenses and that you have a solid financial base.
Use Your Cards Every 6 Months
If you are keeping your credit card balances under 10 percent, you are probably not using them very often. After all, managing a low balance is difficult, so most of you will tend to simply pay it off and put the card away.
You must be sure to use that card from time to to time however. Just because you have a credit card in good standing does not mean that you will be able to keep it. Credit card companies want you to use the card, it is the only way they make money. If you are not using your credit card, they will often flag your card for inactivity and close the account. Why would they want to pay to manage a card that you are not using?
To keep your cards in good standing and open, use them for a small charge once every six months. This could be just a fill up at the gas station or your weekly grocery order. It does not have to be a big purchase, just use it for a regular expense and then pay off the card when you get your statement.
Use Perks Responsibly
If you have good credit, you probably have credit cards with perks. These are incentives that credit card companies give you to get you to use your credit cards. It could be straight up cash back on purchases or it could be those oh so coveted airline miles. Whatever the case, you should take advantage of them, responsibly.
The key is to only buy something with a credit card that you are ready to buy with cash. If you have the money for a new television, buy one with your credit card and get 3 percent cash back. Then, when the statement comes, pay off your card while enjoying your free money.
Just do not make the mistake of carrying a balance and you can use your credit card perks to the max. Be sure to keep in mind that your credit card issuer is not in business to lose money. The only reason that they offer these perks is that they encourage people to make charges and carry a balance. Don’t fall for the trap.
Ask For Credit Line Increases
If you are handling your credit cards responsibly, there is no reason that you should not receive the occasional credit line increase. While you may not need the extra credit, having a high amount of credit available to you is a positive factor on your credit report.
Unfortunately, not every card company is good abut granting credit card limit increases. This is especially true if you never carry a balance higher than 10 percent of the available credit. Your card issuer might not see the need to give you an increase, which is why you will need to ask for one.
To ask for a credit line increase, some credit card companies will have a simple online form. This used to be fairly common, but most companies have removed the form, meaning that you will now need to call in your request. It is a five minute phone call that will be very much worth the effort, so make some time to do so.
Plan Your Debt Reduction
So, what happens if you have already charged up your credit cards to well over 10 percent? If this is something that you are dealing with, you need a debt reduction plan and you need one fast.
Having a plan will help you stay on track with credit card debt reduction. The two most popular plans out there are the Debt Snowball plan and the Debt Avalanche plan.
With this plan, the focus is on staying motivated.
The idea is to pay the minimum on all of your cards except for the credit card with the lowest balance. On that card, you pay as much as you can each month. Since this card will have the lowest balance, you will be able to pay it off the fastest. You can pay off a 500 dollar credit card in a month or two while a 5000 dollar credit card might take the better part of a year.
Having a credit card account paid in full will ideally motivate you to keep going and pay down the rest of your credit card debt.
With this plan, logic is key.
The Avalanche method involves paying the minimum on every credit card except for the one with the highest interest rate. On this card, you pay as much as you can until it is paid off. Because it has the highest interest, you will save money by paying off the costliest debt first.
If you are a logical person, the Avalanche method will likely appeal to you because it makes the most of your money.