Credit Card Advice We're Tired of Hearing: Top 3 Tips to Forget
Written by Beverly Blair Harzog
Posted On: March 26, 2010
Ever feel like you'll scream if you have to hear the same credit card advice one more time? Let's take a look at three of the most popular tips you're tired of hearing--and improve on them.
#1 Don't use credit cards
Really? Unless you're a compulsive spender, this advice is puzzling. Using credit cards responsibly offers many benefits. It gives you a credit history, which will come in handy when you need it. That new home you have your eye on? It's not happening without a stable credit history.
If you lost your job during the economic meltdown, you might be in a position where you got into debt and now need to rebuild your credit. Using your cards and paying your bills on time will help repair your score. It takes time, but it works.
#2 Don't use more than 30 percent of your available credit
You've probably heard about your "credit utilization rate." It can get a little confusing, so here's an example:
Let's say your total credit card debt balances equal $5,000 and the total limit across all of your cards equals $20,000.
Your utilization rate = 5,000/20,000 = .25, or 25 percent.
Now, having a utilization rate under 30 percent may have been good advice before the economic meltdown. But if you want a higher credit score, pay off some debt and knock your utilization rate down to about 10 percent. These days, issuers love consumers with great scores.
#3 Use credit cards for emergencies only
If you pay your debt off when the statement comes, there are some cost-saving and practical reasons to use your card regularly.
Some card issuers are bringing back inactivity fees. The terms and conditions vary, but you could be charged an inactivity fee if you don't use your card for more than six months. And what about getting rewards points? If you choose a rewards card that suits your lifestyle, you can even save money.
One more reason: If you're heading out for a celebration dinner, do you really want to carry around that much cash? Sometimes, using your credit card is just the practical--and safe--thing to do.
Beverly Blair Harzog is a spokeswoman and contributing editor for CardRatings.com. She's a former CPA and an award-winning personal finance journalist. She's a former columnist for the Navy Federal Credit Union's magazine, Home Port, and has written about credit issues for CNNMoney.com, FoxBusiness.com, Good Housekeeping, Bankrate.com, Bottom Line Wealth, CreditCards.com, AARP Bulletin Today, and more. She's also the co-author of The Complete Idiot's Guide to Person-to-Person Lending (Alpha Books/Penguin, April 2009). Follow her on Twitter @beverlyharzog