How Do I Get Better Credit?

If you’re just getting into the credit card scene, it can be hard to know how to navigate all the rules.  Will carrying a balance every month impact your credit rating?  How late can you be on your payments without getting in trouble?  How much debt is too much?

Yeah, there are a lot of ins and outs to credit cards, and we’ll show how to start using them responsibly.  It’s actually not that hard to avoid getting in over your head.  All you have to do is watch what you spend.  Some people feel that when they get their first card their income jumps by a couple thousand bucks.  They think having a credit card is a license to buy whatever they want.

You, on the other hand, surely know this isn’t true.  Everything you buy with a credit card does have to be paid for.  Nothing is free, and when you buy something with a credit card you’re essentially “borrowing” money from the credit card company in order to pay for it.  Think of it like a small loan that has to be repaid at the end of the month. 

It’s very easy to spend more than you should, however, which is a big reason why so many people get into trouble with their credit card debt.  Yes, you want to use your credit cards every month to start building up your credit, but you don’t want to overspend. 

One way to avoid this is to use your credit card to buy one thing a month.  Go out to dinner and hit the movies.  After that night, put the credit card away.  When your bill comes, pay it off in full.  This way you’ve got a card in case of emergencies, and because you don’t carry it in your purse or wallet you won’t be tempted to buy things you can’t afford.

If you do want to carry and use your card for convenience, then spend with this in mind: every time you buy something, ask yourself if you have enough cash in your bank account to cover the purchase.  Not next week, or next month, but right now.  If the answer is no, then you probably can’t afford what you’re about to buy and need to hold off.  This, of course, doesn’t apply in an emergency (such as when your car breaks down).  When you do have to spend for emergencies, make sure you create a plan when things calm down for how you’re going to pay for it.

But, you’re thinking, I can just pay the minimum balance every month right?  And that’s usually only $10 or $20. 

And here’s where the credit card companies really make their money.  Say you rack up $1,000 on your credit card and don’t have near enough money to pay that off at the end of the month.  Your statement comes and you see that you can pay $20 and be in the clear.  Sounds good, right?  Paying $20 is way better than $1,000.

Well, many people don’t understand that credit card companies charge very high interest rates, sometimes up to 20% or more.  And that interest starts piling up big time if you let it.  Want to know what 20% of $1,000 is?  $200.  That’s what you’re paying every month, just in interest, if you don’t pay off that balance in full.  Some good advice is to stop using the card until you can pay off your balance.

Also, make sure you pay on time.  If you’re late your interest rate oftentimes gets jacked up, and this can really hurt you if you’re carrying a balance month to month.  Late payments also hit your credit score hard.  Your payment history is the single biggest factor in your credit score, so the best rule is to pay in full, and pay on time.

Another good rule of thumb is not to get sucked into the trap of signing up for every offer that comes your way.  Once you start using credit cards, it’s amazing how many offers you’ll get in the mail.  Having multiple cards makes it even harder to use them wisely.  It also negatively affects your credit score if you’re signing up for a lot of cards in a short period of time.  So, carry one or two and leave it at that.  You surely don’t want to get in over your head like so many others.

It’s not hard to use credit cards responsibly.  Your credit score is the single biggest factor that will allow you to get a car, buy a house, or sometimes even get a job.  Credit is a huge part of our society so learning to manage it responsibly is a skill that will ensure that you succeed in life.  Good luck!