by Amy Lillard
Credit and credit cards are an integral part of our economic system today. But there is a lot of misinformation and misunderstandings about credit. In this continuing series, we examine key concepts, tips and best practices when it comes to credit cards.
(10/31/2012) Many consumers have credit cards. But just as many consumers don't know how to use credit cards properly. While credit is a powerful tool, using it in the wrong ways can wreck your financial profile now and in the future.
What should every credit card user be sure to do?
• Spend wisely. Understanding that any money spent with a credit card must be paid back, usually with interest, is critical. Spend within your means, and don't purchase items you would not otherwise purchase. Also, keep an eye on your limit. Always spend below that limit, and try to keep the balance below 30 percent for optimal credit scores.
• Communicate. If you feel you won't be able to make a monthly payment, talk to your lender or credit card company. Most will provide a helpful solution and even waive fees. But if you simply miss a payment without explanation, your credit score will take a hit.
• Negotiate. Pay attention to your interest rate, which determines how much extra you're paying back. Lenders are usually reasonable, and will offer solutions if you ask for a lower rate.
• Limit cards. Don't apply for and get more cards than you can handle. Limit yourself to only what you need.
What should every credit card user NOT do?
• Buy everyday items. Don't use your credit card to purchase items like gas or food — using a credit card instead of a debit card or cash can get consumers into debt quickly.
• Pay the minimum. Paying the minimum amount due each month increases interest and the time it takes to pay off your debt.
• Close accounts. It makes sense to close an account after paying off a balance, but doing so could actually hurt your credit.
With a little practical knowledge and helpful tips, you can ensure you use your credit card wisely, and protect your financial health.
For Additional Reading:
Do's and Don'ts of Credit: www.cautionwithcredit.com/dosanddonts.aspx
Do's and Don'ts for Closing Credit Card Accounts: http://www.myfoxdetroit.com/story/19003702/dos-and-donts-for-closing-credit-card-accounts
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