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5 Minute Guide to Credit Cards

Be smart with credit cards. In order to build your credit score, you have to use credit. But, if you're not smart about it, especially when it comes to credit cards, you will end up damaging your credit instead. Far too many consumers let their credit accounts get away from them and end up accruing unmanageable debt. They feel they would be better off not having any credit cards at all. But it doesn't have to be an all or nothing mentality. Credit cards can be a great thing, if used wisely and responsibly. They can improve your standard of living, build your credit score and give you kickbacks if you use cards that carry rewards. Follow these tips to make sure you don't get in over your head and are reaping the maximum benefits:

Make your payments on time

Payment history, or how you pay your bills, plays the biggest role in the credit scoring formula. Paying late even once can lower your credit score by 100 points. The higher your score, the more you will get dinged. A lower score will also hike up your interest rate.

Pay your balances every month

The most ideal scenario is to make affordable purchases with your card and then pay off the balance before the end of the billing cycle to prevent any finance charges. This shows activity on the card (remember you have to actually use the card for it to benefit your score) but paying it off also boosts the areas of amounts owed and credit utilization in the credit scoring formula. Not to mention, you're saving money by not paying interest.

Keep your credit utilization low

If it's impossible to achieve a $0 balance each month, strive to keep it below 10% of your available limit. If 10% is too difficult, then do your best to keep it below 30%; which will still help your score. And don't ever max out your card; the credit scoring formula frowns upon accounts that have reached their limits. In fact, don't let your balance exceed 50% if you can help it.


If you have a good credit score, usually above 700, and/or have been a customer for a while (a good customer that is) you may be able to negotiate a lower interest rate or get late fees waived.

Read and understand the terms and agreements of your account

Know your available credit limit, what interest rate you will be charged, what the minimum payment is, when the payment is due, etc. The CARD Act mandated that credit card companies make their contracts more clear and understandable. Carefully read through your contract; if there is anything you do not understand, call the issuer and talk to a customer rep.

Be careful with balance transfers

If you apply for a new account that offers 0% interest, know there is always a catch. First, 0% (or other abnormally low rate) is only an introductory offer to entice you to apply for the card. Make sure you know when and how much the rate will jump up. Second, if you plan on transferring debt onto the low interest card, there is usually a balance transfer fee. Know how much you are going to be charged. Often, what you would be saving with the lower interest is counteracted by the transfer fee. Third, be clear if the introductory rate only applies to balance transfers and not new purchases. Fourth, be careful not to transfer all of your debt onto one card. This will throw off your credit utilization ratio and cause this account to get too close to its limit.

Be careful with rewards cards

There are numerous cards that offer bonuses like airline miles, cash back, rebates, even gasoline. These types of cards usually have higher interest rates and carry annual fees. Evaluate if the rewards supersede the extra fees and interest. Also, make sure you understand how to qualify for the rewards. There are always conditions that need to be met. These conditions are subject to change, which they often do. So be sure you always read any new terms and agreement changes.