Credit Karma Tidbit #1: Credit Cards Can Be Your Best Friend… Or Just Plain Evil

One lesson parents should have taught us is the other golden rule: Treat your money the way you want to be treated. Instead, many of us learn the pitfalls of money management by living it and learning from our mistakes. Case study #1: My friend just learned how credit card interest rates work… and almost keeled over when she realized how much she’s paying in interest monthly. Case study #2: Another friend maxed out her credit card, so her issuer closed her card, which dented her credit score. Maybe a financial blunder you’ve made before is a case study of its own. So before another trial-and-error lesson in personal finance costs you cash and stress, take money matters into your own hands. That’s what Credit Karma’s column is all about: personal finance lessons to help CuteGeeks get good financial karma. Treat your money and credit the way you want to be treated, so you can save money and build a great credit score.

Tidbit #1: Credit Cards Can Be Your Best Friends Or… Just Plain Evil

Credit cards are potentially awesome because they build credit, provide a financial safety net during hard times, and are very convenient. On the other hand, credit cards are also designed to make the most money off of you through interest charges, penalties, and fees. Read these six commandments on how to handle your credit card to take advantage of credit cards’ credit-building power so it never takes advantage of you again.

Do’s!

1)      Do use your credit card. The only way to build credit is to use it wisely. Avoid going overboard by using your credit card to make small purchases every month that you pay off in full and on-time when your bill rolls around.

2)      Do find the right credit card for you. If you apply for just any credit card indiscriminately or pick up one of those “pre-approved” offers in the mail, you aren’t maximizing the benefits of getting a credit card. Shop around for a card that suits your spending habits and financial needs. Nab a low interest credit card if you carry monthly balances, a rewards card as an everyday credit card, a secured credit card if you need to build credit, and more credit cards at Credit Karma.

3)      Do negotiate with your credit issuer. If you are a good-credit customer, credit card issuers want to keep you as a customer. You have more leverage to negotiate terms like a lower interest rate or waived annual fee. I asked my issuer to cancel a late payment fee, and they acquiesced since I’ve never paid late before. Give it a shot and negotiate.

Don’ts!

1)      Never pay late. Even by a day; you might get into the habit of it. Set up calendar reminders or automatic payments from your checking account if you need to. The biggest factor lenders look at in your credit history is on-time payments, so always pay your credit card on time and make it a consistent habit.

2)      Never, ever max out your credit card. A huge component of your credit score is your credit utilization rate, which is the amount of credit you use of the total credit available to you. Experts recommend keeping utilization below 30% because there is a marked correlation between low utilization rates and high credit scores. If you max out your credit cards, your utilization rate shoots up and will likely negatively impact your credit score.

3)      Don’t rely on your credit card. Don’t think of your credit card as free money to use; just because you have a $4,000 credit limit, doesn’t mean you have $4,000 available to spend. Anything you charge to your credit card comes directly out of your pocket, like a debit card, since you should be paying your credit card off in full every month. So, bottom-line, only spend on your credit card what you can afford to pay back immediately.

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