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Credit cards can be our best friends or our worst enemies. It all depends on how we use them. So in today’s blog post we are going to review 6 golden rules you want to follow when it comes to using your credit cards. So you become their master,
not the other way around.
1. Pay Off Full
Every single one of your cards, every single month. And if you take only one piece of advice from this video, I would say this is the most important one of them all. There are two primary reasons for ensuring that you pay off your credit card in full every month.
One is it will help you avoid paying interest on your purchases. Credit card interest rates are known for being notoriously high. The average interest rate on credit cards today is about 15%. If you were to only pay the minimum on a $20,000 credit card debt until all the debt was paid off.
How long do you think it will take? At a 2% minimum payment percentage it would take you 47 years to completely pay off that $20,000 in credit card debt. But what’s worse is the total interest you would have paid to the credit card company. About $32,789.56. When you are only paying the interest on a credit card, you are really paying a high price for the privilege of using their credit card service.
And there is no situation where this is worth it.
Another reason you want to pay off your credit card in full every month is that it will help you build good credit. Your payment history is one of the biggest factors that make up your credit score. It represents 35 percent of your overall credit score.
Therefore, the single most important thing you can do to improve your credit is to pay your bills on time. Lenders like prompt payers, so don’t give your credit card company the opportunity to lower your credit score by being a few days late with your payment.
The easiest way to ensure that you pay your credit card in full every month is to set up automatic payment.
Just set up your account so that your full amount is paid full every due date. You can also have a notification be sent to your email address every time this occurs too so you are in the loop as regards to payment going out in full and on time.
2. Request Fee Waiver
Request fee waiver, whenever you can. Or at least request some other incentive if you have to keep paying the annual fee. And
the best time to do this is when you get closer to paying the annual fee every year. Banks want to keep you as the customer so you want to make them earn your business.
There is no shortage of credit card companies in the market. They are constantly competing with each other to gain new customers and retain existing ones. If they feel like they are going to lose you because of the annual fee, they will do whatever they can to keep you.
To be honest it doesn’t work every time. However, they often will throw in some incentive to soften the blow.
For example, American Express Platinum credit card, they weren’t willing to waive annual expense fee, they were willing to provide
additional points if you are willing to remain as a customer. And these additional points were great because they allow you to either get on a free flight or a free hotel night when transferred.
Not only do you get to save hundreds of dollars in fees and get to use all the credit card benefits for free.
3. Don’t Cancel your Cards
Don’t cancel your cards especially the ones you had for a long time. Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score.
Therefore even when you have a card that you rarely use anymore, if you had it since college, it might be worthwhile keeping around. Credit card companies will often cancel your account after a certain period of inactivity.
To avoid having a card you rarely use shut down, set up small recurring expenses and automatic payment on it.
For example, You set up your credit card to pay my $12.99 monthly Netflix subscription each month. This is the only recurring expense on this credit card. This requires almost zero on-going work on my part but your credit report reflects that you’ve had the card for more than ten years, which improves your credit score.
3. Keep It Simple
Keep things simple. Using credit cards for free flights and free hotel rooms. You might have more than 1 0r 2 credit cards. However, even with all your credit cards, try to keep things as simple as possible when it comes to maintaining and managing them.
When you have tons of credit cards you are needing to keep track of you have to manage not only the multiple payments, but all the minute fine prints each card comes with.
How you can use the specific rewards point? Where you can use it? and When they expire? It’s hard enough doing it with just a few cards, when you have 10 or more, it can get really out of hand and you could be paying more than receiving.
However if you find yourself swamped with the number of cards you have, close the inactive ones. As long as you are paying your balances on time and have good overall credit, the long-term impact of closing some of these accounts will be minimal.
And most importantly, you will sleep easier at night with a simple system you can easily wrap your head around.
5. Request a credit limit increase
You should request more credit so you can spend more money. It actually has to do with something called your credit utilization rate. The credit utilization rate is simply how much you owe divided by your available credit.
And you want to improve this number because this makes up 30 percent of your credit score.
For example, You have a credit card with $3,000 total available credit and you spend the max, $3,000 on it. In this scenario, your credit utilization ratio is 100%.
When it comes to credit utilization, lower is better because lenders don’t want you regularly spending all the money you have available. People who regularly spend all credit available to them have a tendency to default and thus from the banks perspective, they are high risk individuals.
To improve your credit utilization rate, we can choose to spend less on our credit cards, but the easier solution is to just request more credit. Now again, this doesn’t mean you should go and spend more. You are doing this primarily to increase your credit utilization rate and thus your credit score.
6. Maximize all your benefits
Many credit cards offer rewards & programs that give you cash back, free hotel nights, and other benefits. But most people don’t take advantage of all the free stuff that comes with the credit card.
For example, most recently when you want to take my family on an overnight vacation, redeem a free night certificate on Credit Card to save more than $300 on a hotel expense.
A lot of cards extend warranty on your purchases. So if you buy that new Macbook and it crashes after the manufacturer’s warranty, it might still have some coverage through your credit card.
Avoid buying the highly marketed extended warranty and check your credit cards policy about.
Free TSA-Precheck and Global Entry
If you have a travel credit card, there is a good chance that it covers the fee for the TSA-Precheck or Global Entry application. Most often every 4 years. If you fly often, TSA-Precheck and Global Entry will make your travel experience so much better. You don’t have to take off your shoes or belt and the line is significantly shorter than the regular TSA line. And the best part is it’s free with your credit card.
Trip Cancellation Insurance
If you book tickets for a vacation and then get sick and can’t travel, your airline could charge you some expensive fees to rebook your ticket. Now this has gotten better since COVID, however it is a risk that you always have to face when booking flight tickets. However, if you purchased it with a credit card that has trip-cancellation insurance, they will cover those change fees.
Not only do you save money but you also gain a peace of mind. Credit cards are by no means without its dangers. However, if you follow these golden rules, you can beat the house and gain all the benefits of owning credit cards while mitigating its downside risks.
Thank you for reading this blog post about the golden rules to use your credit card wisely. If you liked it please share it with your Friends & Family.
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