Using Credit Wisely Part 1 – Credit Cards

If you’ve lived in the civilized world long enough, you probably have a credit card, or have been offered one. Credit cards can be a good thing, or a bad thing, depending on how you use them. Look at our tips on using credit cards, and what not to do.

1. Don’t spend more than you make

This is the number 1 rule of credit cards. A credit card is not free money, and it’s not an option to buy things you would not normally buy. It’s not a way to buy things you cannot afford, or to delay payment of an item for instant gratification. Spending money in this way can lead to a very dangerous road, a quick slide into debt.

2. Do use it to build credit

When you have the money to pay for your purchases, you can use a credit card to make those purchases. It can be a great way to earn credit card rewards, and to build up your credit, provided the card gets paid off every month and no interest is accrued. This is the wise way to use credit cards.

3. Do not over utilize your credit limit

When using credit cards, you never want to reach your credit limit. Instead, take your credit limit and multiply by 30%. This will give you your number for utilization of credit. For example, a credit limit of $10,000 x .30 would be $3000. You should never carry a balance of more than 30% of the limit. This will increase your FICO score, and will show creditors you are capable of using credit wisely.

4. Do have a plan

Before you swipe your credit card, be sure to have a plan as to where the money is coming from. When spending, you should have an awareness of your personal budget, and where each purchase fits into those boxes. This is crucial to not overspending while using your credit card. This also goes back to only buying things you know you can afford, rather than using it as “impulse” spending.

What about you? What is your favorite way to use credit cards, without drowning in debt?

Tune in next week for parts 2 & 3 of this series. We’ll cover auto loans and mortgages next.