1.Pay off your balance in full
This should be a no-brainer rule. Don’t carry a credit card balance. Think about it, a bank pays less than 1% on your savings. With a CD you might get 2% if you are willing to lock the money for a year or two. With an inflation protected ibond you get 3.365% as of today. With the stock market, the average return in about 8%. Average credit card rate? A whopping 16% If I had a choice I would like to a be a credit card company!
2.Don’t sign up for credit cards with annual fees
In most cases, signing up for credit cards with annual fees is a bad proposition. You pay a very high interest on your balance, credit card companies charge the merchant anywhere from 2% to 4% on your purchase and on top of it they want to charge you annually for this privilege? Sure you can cancel your card anytime, but remember, when you cancel your card, the age of the card and the total available credit matters when your credit score is computed.
3.Never take a cash advance on a credit card
This includes using the blank checks credit card companies send out. Why is this a bad idea? Cash advance on your credit card has a 2% to 4% flat fee, plus the interest rate on this advance is usually higher (20%-25%) than your rate for your normal purchases, the interest clock starts ticking the minute you take the money out.
4.Don’t apply for a credit card or cancel one if you plan on applying for a loan (car, home)
This is to do with your credit score. When you apply for a credit card, card companies do what’s called a hard pull on your credit report. Such inquiries are used while computing your credit score and your current credit score determines the APR for your loan. Though the ding is temporary, you don’t want that while shopping for a loan.
When you cancel a card, a different aspect of your credit is impacted. Your total available credit goes down and this too, has a say in your credit score.
5.If you use more than 30% of your available credit on your card, pay it off immediately
Aggressive use of credit lowers your credit score. Though the algorithm used to calculate the credit score is constantly tweaked, 30% is a good ballpark to adhere to.
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