Credit cards are a popular form of borrowing and can be a great tool for managing finances and building credit. However, using credit cards can also lead to overspending and debt if not managed properly. In this article, you will explore the dos and don’ts of credit cards to help you make fullproof decisions about how to use them.
Do: Know Your Credit Score
Before you apply for a credit card, it is essential to know your credit score. Your credit score is usually a numerical representation of your creditworthiness which lenders use to determine your eligibility for a credit card.
A good credit score will increase your chances of being approved for a credit card with favorable terms and interest rates. In addition, you can check your credit score for free from several online sources, such as Credit Karma and Experian.
Do: Shop Around for the Best Card
Once you know your credit score, you can start shopping for the best credit card to fit your needs. Consider factors such as the rewards program, interest rate, annual fee, and any other benefits the card offers. Then, compare several options before applying for a credit card, so you can choose the one that provides the best value for you.
With SoFi experts, “Earn up to 3 percent cash back toward your financial motives.”
Do: Read the Fine Print
Before applying for any credit card, read the terms and conditions carefully. Pay attention to any fees, such as late payment, balance transfer, and cash advance fees.
Also, consider the length of the introductory interest rate period and the interest rate after that period expires. Understanding the fine print will help you avoid any surprises and make informed decisions about using your credit card.
Don’t: Apply for Multiple Cards at Once
Applying for multiple credit cards in one go can have a negatively impact on your credit score. Each time you apply for any credit card, the lender will perform a proper hard inquiry on your credit report, which can lower your credit score. To avoid damaging your credit score, limit your credit card applications to one or two per year.
Don’t: Max Out Your Credit Card
Maxing out your credit card is a surefire way to damage your credit score and increase your debt. Lenders like to see that you are using your credit card responsibly, which means keeping your balance low and making payments on time.
A high credit utilization rate (the amount of credit you are using compared to the amount available) can negatively impact your credit score. Aim to keep your credit utilization rate below 30% to maintain a healthy credit score.
Don’t: Ignore Your Monthly Statements
Ignoring your monthly credit card statement is a mistake that can lead to overspending and missed payments. Reviewing your statements can help you stay on top of your spending and ensure that you are making payments on time.
Set aside time each month to review your statements and ensure that all charges are accurate. If you notice any errors, contact your lender immediately to have them corrected.
Credit cards can be a great tool for managing your finances and building credit, but it’s important to use them responsibly. By following the dos and don’ts outlined in this article, you can avoid overspending and debt and ensure that your credit card usage benefits you in the long run. Always read the fine print and be mindful of your spending habits when in doubt. Happy borrowing!