Using Your Credit Cards Wisely – Part 2
Credit cards have become the most prevalent form of payment. Whether they’re actual credit cards or debit cards, less and less cash transactions are happening, and even fewer institutions will even accept checks any longer. Because they’re easy to whip out, swipe, and go, it’s easy to lose focus and let them take over our lives. In this series, we continue to look at the different ways you can use your credit cards to your advantage. Instead of just using them to pay for goods and services, you can use your credit cards to help increase and maintain a high credit score.
- The Under 25% Rule – Many “experts” recommend keeping a zero balance on your credit cards. In other words, they suggest paying off your cards every month. For the most part, this sounds like viable financial advice. While this is a smart rule of thumb for those trying to work their way out of debt, we’re talking about how use your credit wisely. That means using your available credit to your advantage. The way systems like FICO and Advantage Score Model determine your credit score is by looking at many different factors. Using your credit cards and then paying the balances to under 25% shows lenders you not only know how to use your available credit, but that you also use it responsibly.
- Know Your Issuer’s Reporting Date – Every financial institution reports to the three major credit bureaus (Equifax, Transunion, Experian) just once per month. So, for example, if your Capital One or Discover card reports to the bureaus on the 5th of every month, and your payment isn’t due until then 10th, then they’re going to be reporting a higher-than-accurate balance. Call your card issuers to determine when they report to the bureaus, and make sure your monthly payment is processed before that date. This will ensure the best possible information being sent to the credit bureaus.
- Checking Your Credit Report – It isn’t enough to try and use your credit cards the right way. Too many factors go into determining your credit score. You can do everything exactly the way you’re supposed to and still be burdened by human error and complications due to red tape. An estimated 30% of credit reports contain errors that drag your score down. The lower your credit score, the higher interest rates you’re going to be paying. By checking your credit report twice a year, you can make sure all of your lenders and issuers are reporting your information accurately.
Most of us have a love/hate relationship with our credit cards. We love the convenience they afford us but hate the monthly statements and having to pay down the balances every month. While they have become a necessary part of our lives, it doesn’t mean you have to be subjugated by their long and confusing terms and agreements every month. With just a little effort and planning on your part you can make your credit cards work toward greatly increasing your credit score every month.