Responsible credit card use is one way to build and maintain good credit, which is essential in order to qualify for a larger loan, such as a mortgage loan. However, there are other ways you can work on building your credit. If you find yourself doing any of the following, you may want to steer clear of credit card use before too much damage has been done, because it can cause more harm to your credit than good:
Using credit cards for all of your spending
Do you find that you reach for plastic every single time you’re paying for something? From groceries to gas, a lot of consumers prefer to use their credit cards for daily spending because they collect credit card points and rewards. These points and rewards can eventually be redeemed for freebies, such as travel, merchandise, and other prizes. This can be a good strategy if you have the financial means to pay off your bill in full before the next billing cycle begins. But if you aren’t paying off your bill and you’re simply accumulating debt through these daily transactions, it can be a cause for concern. Avoid daily credit card use by leaving your credit cards at home, and only bring them with you when you know there is a specific purchase you want to make with one of them.
Only making the minimum payment
Only making the minimum required payments on your credit card bills can be a bad habit to fall into. If you keep charging on your credit cards and only make the minimum payment each month, your overall balance will hardly go down because you’re just paying into interest every month. Try to pay just a little bit more than the minimum payment each month, if possible. If you can’t afford more than the minimum payment, avoid using your credit cards and adding more debt. This will only make the problem worse and it will seem like an endless cycle. Focus on just paying off your credit cards, without making any other charges.
No available credit
Are all of your credit cards maxed out? If you’ve reached the credit limit on all of your credit cards, take this as a sign that you should probably cut back on (or stop) credit card use. Using up all of your available credit on your credit cards can be a huge financial burden, and it will also bring down your credit score. Focus on bringing those balances down, and avoid using your credit cards in the meantime. If you’re not sure where to begin, you may want to start with eliminating the smallest balance first and working your way up, or starting with the account that has the highest interest rate.
You buy things you don’t really need (or forget about)
Do you find that you’re sometimes a bit confused when you receive your credit card statement, because you’re not sure about some of the items on there and wonder if your credit card information was stolen? It’s one thing if your financial information was compromised, but it’s another if you know you’re a compulsive spender and half the stuff you bought within the last month is still in its packaging, already collecting dust. If you find that you’re always making impulse purchases, you may want to stop using credit cards for a while. It can be a lot easier to justify purchases when you’re charging them, rather than using cash. Instead, leave your credit cards at home whenever you go shopping—you’ll probably think twice about a lot of the purchases you make when you use a debit card or cash.
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Nothing above is meant to provide financial, tax, or legal advice. You should meet with appropriate professionals for such services.