Credit Card Basics
It is important that you do not take the approach that many consumers take by thinking that it is someone else's responsibility to maintain and improve their credit.
You must be proactive and take the lead in shaping your credit future!
You must not be reactive (address your credit after someone else brings your credit issues to you) in your approach to addressing your credit.
In the past we have seen many consumers take a reactive approach to addressing their credit and this and other credit pages on this site and our companion site are in large part the result of consumers who take the wrong approach in addressing their credit.
You now have the opportunity to avoid making the same mistakes that many consumers have made if you take the time now to get a basic understanding of your credit and gain the required knowledge of how to use your credit effectively for the benefit of yourself and your family.
How Some Creditors Respond if You Don't Utilize Your Credit Appropriately
If you have a number of credit cards and creditors it is not unusual for one or more of your creditors to pull your credit report and if they see usage with other credit cards by you and non-use over a period of time with the credit card that they issued you and you have a zero balance—many will close your credit line.
If you have a banking relationship (or other financial relationships) with them as well and your account usage is low—many creditors will factor that into their decision making as well.
You should be aware that periodic reviews of your credit by
your current creditors can be done at any time.
Many financial experts recommend that you use your credit card every 6
months in order to keep it in your “active mix” of credit usage to reduce the
likelihood of creditors closing your credit line due to lack of usage or other
It is our opinion that your
usage should be quarterly or every 4 months or so.
Doing so will prevent you from letting “time fly by” and you missing the required usage in the time limit that allows the credit card to remain in your active mix.
By keeping the credit card in your active mix you can more appropriately manage and improve your credit and credit score!
Be sure to pay the balance off in full on a monthly basis if
at all possible.
If you do have a balance you must put together a written plan that is realistic, workable and will lead to the payoff or pay down of your credit balance in as efficient a manner as possible based on your income.
You may have to cut expenses or get additional income or do a combination of the two if you are truly sincere in eliminating your credit card balances.
Be Sure that You Understand the Factors that Affect Your Credit
1) Negative Info—35% of your score generally speaking
You must do your best to keep negative information off of your credit file.
Another way of looking at it is that you can’t mess up your credit.
You must get into the habit of paying all of your bills in a timely manner—paying your credit card issuers in a timely manner cannot be over-emphasized enough.
It is one of the major reasons why consumer credit scores are negatively affected at this time.
As you would expect, it also plays a major role in the scoring of your credit.
2) Utilization—30% of your score generally speaking
Always remember that your credit card utilization (how you use your card and the balances that you run up) plays a major role in your credit scoring—therefore, keep your balances as low as possible based on your income and preferably pay off your balance on a monthly basis.
You must make a serious commitment to pay off your balance in a timely manner on a consistent basis!
3) Time—15% of your score generally speaking
Although the time length of your accounts (how old your accounts are) are not as important in the credit scoring of your credit as keeping negative information off your credit or using your credit in an appropriate manner. It is very important that you keep older accounts open and always pay on time if your goal is to maintain and improve your credit.
4) Type—10% of your score generally speaking
You must also be aware that different types of credit will have a more positive effect on your credit score than you having just one or two types of credit.
If you have a home loan, an auto loan and several credit cards—that would be a better mix (type) than just having three credit cards.
5) Inquiries—10% of your score generally speaking
Be sure that you are aware that your inquiries will affect your credit score as well.
Inquiries are when you or an existing creditor pulls your report.
In cases when you or an existing creditor pull your credit report it will normally not affect your credit score.
However, if you apply for new credit your file would be pulled by that new creditor and it could make your credit score go down some.
If you are trying to increase your credit score you may want to avoid applying for new credit until you get your credit score at the level that you desire.
Another wise approach is to do your loan shopping within a short window when you eventually apply for credit.
By making basic credit card information a part of your
mindset or mental make-up on a daily basis you put yourself in position to
control your credit for the rest of your life.
If you are at this time trying to increase your credit score rapidly and you have a number of credit cards you may want to pay each card down a proportionate amount (if you have the appropriate income) instead of concentrating your efforts on one particular credit issuer or credit card company!
Zero Percent Interest Rate Promotions
At the current time (summer 2012) many credit card issuers have zero percent promotions. If you have decent credit (720 credit score and higher) you may be able to transfer your balance from a higher interest rate card to one at zero percent interest for up to 18 months.
You can go to lendingtree.com to learn how you can further improve your credit and credit scores so that you can reach your home ownership goal, finance your automobile loan at a competitive rate or obtain credit cards that offer competitive rates based on your credit!
Be sure you "run the numbers" prior to transferring your balance to make sure that the balance transfer is really beneficial for you and your family.
You must know the transfer fee and other fees and whether or not you have the "discretionary income" to pay off or pay down your balance—in the zero percent time window.
Always be aware that if you don't pay off the balance during the intro period your payments could go up substantially—with APR's over 20% with some credit issuers.
Also, depending on your outstanding balance you may not be able to transfer your total balance. Your "credit limit" with the new issuer will not be known up-front in almost all cases.
If you charge new purchases on a card that was transferred to a zero rate card you "will" pay interest on those charges at the regular interest rate and your monthly payments would go first toward the new debt and then the zero interest rate portion of the debt.
If your goal is to eliminate your debt efficiently it is imperative that you do not use the card during the pay off or pay down period!
Some credit issuers waive the transfer fee and have no other fees. In that case you could really come out ahead if you transferred high balances and paid the balance off during the promotional period!
You can go to chase.com to find a card with no transfer fee. You can go to lowes.com and citisimplicity.com to find cards that offers zero percent interest rate and no annual fee—even on new purchases.
Keep in mind that even though you have a zero-percent interest rate most creditors still require that you make a minimum payment—however the payment will go totally towards principal if done during the promotional period!
Use caution on new purchases and be sure you have a properly funded emergency fund in place.
If you were to get a zero rate credit card with no annual fees that applied to new purchases you could then put yourself in position to increase your emergency fund balance (by saving the payment that you would normally make to the credit issuer) and then "buy time" and pay off your balance promptly before the zero percent new-purchase period ended.
It could be a wise choice if you were going to make a major purchase anyway and you didn't want to use cash.
Keep in mind though that the above strategy is no substitute for wise management of your credit and finances.
Also be aware that zero percent interest rates on reward cards are rarely offered.
However a Chase Freedom card allows you to pay just that—zero percent for 15 months with no annual fees and 1% to 5% cash back depending on what you purchase.
Again, you can go to chase.com to find the Chase Freedom card that offers rewards with no interest for 15 months and no annual fees and no transfer fee!
Be sure to go to creditcards.com/calculators to see how much you can save on your credit card interest and other fees—if you are considering a balance transfer of any kind.
Creditcards.com/calculators allows you to plug in the transfer fee of the card issuer offering the promotion along with your estimated balance transfer amount to give you a preview of whether transferring would make sense for you!
Make sure you have a working knowledge of the factors that affect your credit score and be sure to do your due diligence on the front-end if you are considering opening new credit, doing a balance transfer, closing existing credit or addressing your credit in any other manner!
Your goal is to make the right decision on the front end!
You don't want to put yourself in position where you question your decision making—after the fact!
If you would like to gain an even deeper understanding of how credit works and how you can gain a better working knowledge of how to use credit effectively in your life—Click Here!
We wish you success in your credit and financial future!