People often vilify credit cards because they have such high interest rates. When it comes to consumers who aren’t able to pay off their balance each month, these interest rates can end up being extremely costly.
In this article, we’re going to go through a few ways in which you can have a good experience as a credit card user.
Understanding APR
Compared to other forms of credit, credit cards have generally higher APRs. Even if you have a good credit score, the APR can end up being terrifyingly high. When you start slipping into credit card debt, that hole can end up extremely deep, making it very difficult to climb out of.
Luckily, there are ways to avoid slipping into that hole to start with, including paying off your credit card statements in full each month.
The Importance Of Paying Off Your Credit Cards In Full Every Month
Credit card companies bank on the fact that most people won’t pay off their credit cards each month.
If you want to use credit cards responsibly, it is important that you never put more on your credit card than you’re able to pay off each month.
Paying your bill off each month means you avoid paying interest altogether. In this scenario, your credit card use won’t cost you a dime except for the annual fee (if your credit card has one). Of course, that annual fee might actually be worth it if you’re taking advantage of rewards that come from using your credit card, though it’s up to you to perform your own cost-benefit analysis.
Keep Your Balance-to-Limit Ratio Low
Want a good credit score?
You need to keep your balance-to-limit ratio low! Sometimes, you’ll hear this balance-to-limit ratio referred to as a utilization ratio. The idea here is, the closer your credit card balance is to your credit limit, the more drag on your scores.
Do note, this goes for both VantageScore and FICO scoring models.
You can still use your credit card to make large purchases, just note that having a higher balance on your credit card will lower your credit score.
A good rule of thumb is that you should never use your credit card to make big purchases prior to applying for a large loan, such as an auto loan or mortgage. If your credit utilization rate is high when you apply for these loans, you could end up locking in a high interest rate, which would not be good news later down the line.
Final Thoughts – Using Your Credit Card Like a Pro
Here at Boost Credit 101, we specialize in helping people like you raise their credit scores with high-quality tradelines. Make sure to reach out to us with any further questions.
Your finances are a big part of your life and can make or break certain situations. When you’re ready to take the next step in your tradeline journey, make sure to get in contact with us!
