How to Show Financial Responsibility with Credit Cards
Have you ever been told that you have to carry a balance or make just the minimum monthly payments on a credit card to build credit? Do you have several credit cards, but have heard that it would hurt your credit to close them? A credit card can be used as a financial tool, helping to build, maintain, and even assist in repairing your credit! In order to achieve financial responsibility with credit cards, you first must understand how they work. Let’s take a look at some common myths, then deliver the facts, to guide you through financial responsibility with credit cards!
MYTH: You have to carry a balance and make just the minimum monthly payments on your credit card to build credit.
FACT: Carrying a balance and making just the minimum monthly payments may actually harm your credit. Paying off your balance in full each month will benefit your credit the most, however, making the minimum payment will still reflect on-time monthly payments. It is always best, if you cannot pay off your balance in full, to at least make more than the minimum payment.
MYTH: You have to have several credit cards in order to show financial responsibility, and you shouldn’t close any of them.
FACT: Having several open cards used correctly will show financial responsibility, however, several cards close to their limit will reflect just the opposite. For some, closing cards might not be the best option, but for others, it may be the fastest and easiest way to consolidating debt and increasing your score.
MYTH: Even if you pay your balance in full, you are still paying interest.
FACT: If you pay your balance in full before it is due you will not pay any interest, you will only pay what you charged.
MYTH: Credit cards should be avoided because they create more debt.
FACT: When used correctly, credit cards are a helpful financial tool. You can track your spending by using your credit card, which will in turn assist in promoting self-discipline. Allowing yourself to only charge what you can pay back will keep you on track to financial well-being.
MYTH: You can spend up to your available credit limit, worry free.
FACT: Keeping no balance on your credit card by paying it off monthly is the only way to use a credit card worry free. If you do carry a balance, it is important to keep your balance at or below 30% of your limit to keep your credit score from decreasing.
MYTH: You should apply for a high limit/ You should apply for a low limit.
FACT: Whether your limit is $500 or $5,000, it is important to only charge what you can afford to pay back in full, or within a reasonable amount of time. If you know a $5,000 limit will be too tempting, apply for a smaller limit, or set a limit for yourself that you can commit to.
MYTH: All credit card interest rates are high.
FACT: Credit card interest rates vary by lender. Some lenders may offer higher rates, but better rewards. Other lenders may offer lower rates, but also charge an annual fee. It is essential to read about what the card offers, and know what you are looking for. If you plan on paying off your card each month, the rate won’t affect your payments. If you plan to carry a balance, you must be mindful of the rate, since it will affect your payments and your available credit.
The hidden benefits of credit cards are often overlooked. Think about a paperless trail for all of your receipts. All you have to do is log in to view your charges, and see how much you spend and where. By tracking your spending, you may begin to notice that you are making unnecessary purchases. If you notice such a trend, you can be more aware of your purchases, before your balance increases to an amount that you cannot pay off, leaving you to carry a balance.
Rewards that credit cards offer also play a role in the decision of which card to apply for. It is important to research various cards to find the right rewards for you. If you’re interested in cash back offers, the new Dutch Point Credit Union Signature card gives you 1.5% cash back on all net purchases, which can even be used as credits to pay your bill. Rewards that can be redeemed for merchandise or gift cards are also popular, and a Dutch Point Credit Union Platinum card will offer you points to earn such items. Not interested in rewards? Look for a card with a low interest rate that offers no balance transfer fees or annual fees, such as the Dutch Point Credit Union Essential card. Regardless of the reward program you choose, it is important to not get stuck in the trap of spending just to earn rewards! Be sure to keep your spending at an affordable amount that you can pay back to truly enjoy those rewards!
If you feel like you need some help on what card may best fit your lifestyle, or you still have more questions about achieving financial responsibility with credit cards, Dutch Point Credit Union in CT offers free personalized credit reviews. One of our friendly loan specialists will not only review your credit report with you, but they will also be able to suggest the credit card that will best suit your financial needs. Learn more and sign up for your personalized credit review today.