Credit cards – they can be a friend or a foe! As you get ready to enter into the world of credit cards or add another card to your menagerie of other cards here are a few tips to keep in mind:
Make sure that you will be able to get a credit card
You must make sure that you first have good credit. What does having good credit mean? It means you have made all of your payments on time for all of your bills. Make sure your electric, mortgage or rent, phone, water and the list can go on of bills, are all paid on time. If you already have credit cards make sure that all of your accounts are current and paid on time also. If you have had trouble in the past, that is ok.
Just make sure that you are now financially able to handle something else to pay! What if you are just starting out and don’t have any bills or anything? You can still apply for a credit card. You will not really have a credit score at that time, so you will be limited in the types of credit cards you can get, but when you do get one just remember not to overuse it and to pay it on time and keep it paid down. This will begin you on the journey of acquiring a good credit score.
Don’t try to apply for too many credit cards at once
Your main objective is to find the right card for you so do a little research from card to card and pick the one that fits you! Look to make sure that the credit card does not have an annual fee, look at other aspects of the card, check to see what a fee would be if you did accidently miss a payment (even though you do NOT want to do this sometimes life happens and the due date comes and goes before you realize it and a fee is added to your card and fees vary from card to card), see if there are any cash back bonuses, travel perks, and other perks that cards might give back to you (for example, Disney Visa is one that can help you earn money to go toward a trip to Disney and Citi double rewards will give you cash back when you buy and when you make your payment).
Once you find a card that would fit your need, then apply for that card. Don’t apply for others until you hear from the first one you applied to because it will put an alert out to the creditors to wonder why you are looking for so much credit. Your credit score can be affected every time a credit card company looks at your credit. So just keep in mind to research a few cards, pick the best one for you and apply. If for some reason they deny you the card, then pick your next card that fits your needs.
Keep your credit utilization ratio on the lower end of the scale
What does this mean? This means that if you have multiple credit cards already and if you have 3 cards at their maximum limit that will show the credit card companies that you have a very high credit utilization – meaning just the fact that you are using almost all of your credit that has been offered to you. You want to keep the ratio to 30% or less if at all possible. Many people will have multiple credit cards, but the problem is life gets busy and you may use your card and swipe it here and there and then pay on the card here and there, but somehow even with your payments your cards are almost at their limit. That is a good way to get yourself in some bad financial debt.
Keep the ratio low and try to keep your credit cards with little or no amount on them. Remember also to have good debt to income ratio. Here is another ratio to keep in mind and a very important one. What does debt to income ratio mean? It tells us how much debt you have compared to what money you make at your job and bring home. Obviously you want your income amount to be over your debt amount and that is exactly what this ratio is talking about. To keep out of huge financial troubles make sure you always have enough income to cover normal living costs (mortgage/rent, utilities, gas, food, insurance, etc), cover your credit card payments and still have some left over to put into savings!
Choose the right card
We mentioned this a little bit previously, but also think about the type of card you need in accordance with your credit score and where you stand in the credit arena! If you are a new credit holder then you will need to find a card that is either made just for first-time card holders or one that does not require a high credit score rating. Some cards out there require you to have a very high credit score. You can find this information as you research each card.
If you have excellent credit then you will be able to apply for just about any card out there. Even if you have bad credit, you can still sometimes get a credit card – again it just depends on the types of debts you have and how many of them you have along with what you make at your job. There are a few cards out there for the lower end credit score people. You may just not get a high credit limit, which is ok because you need to work your way back up to show them that you can handle money issues and get your credit back on the road to health.
Just remember credit cards are not the answer to any financial problem. Always remember to pay off most, if not all, of your payments each month and also use your card wisely in order to increase your credit, not decrease it.
Sourced from: nerdwallet
Photo: Thinkstock/Rtimages
