Credits cards are one of those things that everyone seems to have, it’s almost like a coming of age right of passage, but not many people seem to actually know a lot about. A crazy amount of us, myself included, have been casually using our credit cards ALL wrong, blissfully unaware of what we’re doing.
Seeing as we just made it out of Silly Season and your credit card probably took a decent hit, financial expert Nathan Grant of Credit Card Insider offered a few tips to keep it all under control.
When Should You NOT Have A Credit Card?
Let’s just shut this one down real quick, shall we? A credit card isn’t right for everyone, and you need to work it out before you start applying or you could get yourself into quite the financial mess.
“If you already have a lot of credit card debt, you should not be applying for a new card if you’re going to accumulate more debt on new purchases,” explains Nathan. “Check your current credit scores and reports to see where you currently stand, and decide if you can use a card responsibly by paying it in full each month.”
“If you don’t feel confident you’ll be able to pay your credit card balance in full each month, then a credit card might not be right for you. Credit cards can be a beneficial financial tool, but misusing a card can leave you in debt, and can cause long-lasting damage to your financial health if not handled responsibly.”
And those credit cars retail stores kind of shove at you at the counter sometimes? With all the amazing benefits? Yeah, don’t be rushed into any decision like applying for a credit card.
“Don’t make a decision about whether to apply for a retail store credit card at the point of sale,” Nathan says, “The decision to apply for any credit card should be considered carefully, even though it can be tempting with attractive rewards and discounts that many retailers offer when signing up for their credit cards. Store cards tend to have worse terms than other types of cards.”
What Are The WORST Credit Card Habits
Sometimes, it’s most helpful to know what you absolutely should not do, before you can move on to good habits. When it comes to credit cards, Nathan explains there are four common habits you should absolutely never indulge in.
The first is spending more than you can afford and only paying off the minimum. If you aren’t sure you’ll be able to pay it off in full by the time your monthly bill is due, don’t make the purchase.
Second, not paying your bills on time. Nathan explains that “Late payments and accounts that go to collections for going unpaid are a terrible signal to lenders and will do damage your scores for many years.“
Third, raising your debt relative to your credit limits. Just because your credit limit goes it doesn’t mean you have to spend it, and it certainly doesn’t mean that you can afford to.
“Maxing out credit cards, or having a high credit utilization, is a bad sign that you are unable to use credit cards responsibly.“
Finally, applying for multiple credit cards in a short amount of time is a bad look. Why is that? Nathan says “it gives the impression that you are desperate for money and, lenders may think you’re a greater risk.“
What Credit Card Should You Apply For?
First things first, Nathan recommends you work out what you’re getting a credit card for, so you can tailor the card choice to your needs.
“Assess exactly why you want to get a credit card. Do you want to build credit so you can improve your credit scores to increase your chances of approval when applying for a car loan or a mortgage?”
“There are many different rewards cards, and some may fit your situation better than others, such as travel rewards for the frequent flyer, or cash-back rewards for everyday purchases like gas, groceries, or dining out.”
Then, you need to understand the terms, which are unique to every credit card. Nathan says the main things you need to consider are:
- If the card has an annual fee, understand what it is and determine if the rewards or benefits will be worth it to you.
- The automatic payment options and fees associated with the card.
- The rewards program of the card, if it has one.
- The Annual Percentage Rate (APR) of the card, aka what it costs you so use the card.
Do You Have To Pay It Off Monthly?
Credit cards seem like such an easy thing to slap a payment on to and deal with later, but if you can’t afford to pay it off within the month, what happens?
“Maxing out your cards and not paying your bills on time are the fastest ways to do damage to your credit scores,” Nathan explains, “Your payment history and your total amounts owed are the two biggest factors that go into determining your credit scores, so conversely, these are the two areas where you can take control and work towards building good credit by paying on time and in full every billing cycle.”
So uh yeah, better make sure you’ll be able to pay off your card on time before handing it over. What’s more, Nathan says that while paying a little off is better than paying none, you really shouldn’t be making purchases if you’re not sure you can pay off the monthly balance.
“When you don’t pay your statement balance in full each month, interest fees will add to your balance and make the ratio higher, so it again emphasizes how important it is to pay your monthly bills on time and in full.”
Can You Have More Than One At A Time?
It seems there is no one answer to this question, as it all comes down to your own personal finances, needs, and habits. Nathan reiterates that you really have to work out your own financial situation and motivations for getting a credit card before applying for any of them.
“As long as you’re responsible and are able to pay them off in full and on time, it’s possible to have multiple cards and maintain great credit scores.”
But if you’re a total newbie to the credit card world, don’t go all in on your first go, and always be honest with yourself about what you can handle.
“If you are starting from scratch when it comes to credit cards, you should start with just with just one. If you are unable to use credit cards responsibly, then a credit card might not be right for you.“