6 Credit Card Commandments
In this post, I'll be discussing the six commandments of credit cards and how doing these six things can completely level up your finance game. Credit cards play a major part in our lives and most of our largest purchases are made on credit. How you behave with your credit card can have a major impact on your credit score. Here are six things you need to make sure you are doing with your credit cards.
1. Pay Off Your Credit Card Each Month
Debt payment history makes up 35% of your credit score and paying on time is the single most important thing you can do to improve your credit score. Not to mention that the interest that accrues each month can quickly spiral out of control and cause you to sink into even more financial trouble.
Awful consequences of missing a payment:
- Your credit score can drop by more than 100 points (which would add $277/month to an average 30-year fixed rate mortgage).
- Your APR can go up to 30%.
- You'll be charged a late fee, usually $35.
- Your late payment can trigger rate increases on your other credit cards as well, even if you've never been late on them.
2. Get the Annual Fee on Your Cards Waived
There is no reason for most of you to be paying an annual fee to use a credit card. Annual fees can range from $50, $100, or more. Wouldn't you rather spend that money on something else like food or paying off your debt? So for those of you who are new to personal finance, if your card has an annual fee, call your credit card company and ask if they can waive the annual fee. Sometimes it works, sometimes it doesn't. If they won't waive the fee, see if they can switch you to a no-fee card.
The only exception for paying an annual fee is for those who know how to churn rewards benefits but that’s a more advanced tactic, so don't worry about that for now.
3. Negotiate a Lower APR
The APR is the annual percentage rate and it’s basically the cost the lender is charging you to borrow money. Average APRs can be 13-16% and can add significant costs to your monthly payment. If you're carrying credit card balances, call your credit card company and ask if they can lower your APR. Sometimes it works, sometimes it doesn't. You can save hundreds to thousands of dollars if you’re able to negotiate a lower APR, so keep trying and don't let them say no. If you pay your credit card bill in full each month, then you don't need to do this since you are not being charged any interest, so that’s another benefit of paying off your credit card each month.
4. Keep Your Main Cards For a Long Time and Keep Them Active
Lenders like to see a long history of credit, which means that the longer you hold an account, the move valuable it is for your credit score. So, if you're happy with your card, then keep it. Don't get suckered in by introductory offers to open a new one. For most people, having 2-3 credit cards is perfect. If you own a business or are trying to churn sign-up rewards, then it makes sense to have more. Here is something to look out for, some companies will close your accounts if they are inactive after a certain period of time. So play it safe and keep it active by using it to pay one of your monthly subscription services like Netflix.
5. Get More Credit
This is important, only do this if you have no debt and pay your bills in full each month. It's not for anyone else. It involves getting more credit to improve your credit utilization rate. Your credit utilization rate is found by dividing the amount of money you owe by your total available credit. Lower utilization is better because lenders don't want you regularly spending all the money you have available. To improve: (1) reduce the amount of debt on your cards or (2) increase the total available credit. To increase your credit, call your card company and ask for a credit increase; sometimes you can even do it online.
6. Use Your Credit Card's Secret Perks
You can get great deals on your credit when you're a responsible customer. There are plenty of hidden perks that a lot of cards offer.
Things you might not know about:
- Automatic warranty extensions
- Car rental insurance
- Trip-cancellation insurance
- Concierge service
Make sure you check with your credit card company to see what all the benefits are.
*Disclaimer: I am not a financial advisor. The ideas presented in my articles and videos are for entertainment purposes and not to be taken as financial advice.