Tips for Managing Credit Cards
Pay on time
The No. 1 way to improve and keep good credit is to demonstrate that you are a responsible individual. You will hear these words over and over and over as you learn about financial management. Timely payment is the easiest way to improve or to ruin your credit status.
Pay more than the minimum amount due
Be aware of how your APR determines the actual cost of your purchases. When you pay the full amount due each month, no interest charge is added to your account so your cost is the amount on the price tag. If you make the minimum payment, interest payments will be added to your unpaid balance. Over time, your unpaid balance will grow as interest charges are added on top of the original amount you charged. You will pay interest on your interest charges. The actual cost of your purchases may then balloon far beyond their true value.
Your credit card company will send notices to you by the mail when changes are made to your current contract. Review inserts carefully for important information regarding your account that may be hidden in what looks like an advertisement. On the other hand, convenience checks or a solicitation for more business should always be shredded.
Grace period vs. low interest rates
Be honest with yourself if you make this choice in selecting a credit card company. Will you carry a balance or pay your bill in full each month? Grace periods are only helpful if you pay in full every month. Otherwise, a low interest rate is the way to go.
Do not use cash advances or courtesy checks
These marketing devices may seem very attractive in a money crunch, but the interest rates are so high that you could end up in more financial trouble.
Use credit for travel and emergencies
Credit cards are best for travel or that night you walk out of class and the car won't start. Most students don't have an extra $500 for major repairs or problems. Cards offer travel protection against theft and and can be much safer than carrying cash or traveler's checks.
Freeze your credit card in a bowl of water if you are weak and likely to overspend impulsively. Then, when you find something you'd like to purchase, go home and thaw the frozen card in the refrigerator. Thawing should take a few days, plenty of time for you to decide whether you really want to make the purchase now, buy later, or save your time and money for another day. (Just remember not to try thawing in the microwave: you'll erase the card's magnetic strip!)
Did you know ... ?
- Some credit card companies charge a transaction fee to convert your cash to a foreign currency.
- If you are a long-time credit card holder with a high interest rate, request that the company give you a lower interest rate or ask them to drop the annual fee. Credit card companies want your business and will often do what they can to keep you. The worst they can say is, 'no.'
- You can deny a raise to your credit limit. If you get a letter that congratulates you on a new increased credit limit for being such a good customer, call the company and say, 'No thanks.' A higher credit limit is an invitation to spending beyond your means. While a company will set the initial credit limit on your card, you can deny increases. Why would you want to deny an increase? Having too much credit available can negatively affect your credit rating. If your debt-to-income ratio is more than 15 percent, you could be denied future credit.
- Your credit card issuer can close your account anytime, for any reason, even if your account is in good standing. It has been known to happen to customers who incur no fees and pay their balance every month, simply because their account may not generate enough profit for the card company.