Credit Cards and Your Financial Health – Part Two
This is the second in a two-part series on Credit Cards & Financial Goals. Read the first part here.
In our previous post, we discussed five questions you should ask yourself to help determine whether your credit card usage is helping or hurting your financial health and ability to achieve your goals. As a follow-up, here are some ways in which credit cards can contribute to your financial success as well as some situations that you’ll want to avoid.
Protect Your Funds
Using credit cards can offer peace of mind. Unlike cash, a credit card offers you an electronic trail of where you are spending and accounts for every dollar spent. If you are using online banking or mobile banking, accessing your complete account history will allow you to keep a closer look on expenses and keep track of your spending plan. Many credit cards also offer fraud alerts, protecting you from unauthorized charges. In serious cases, you may also freeze or even cancel your accounts to reduce the liability of charges that weren’t made by you.
Know Yourself (& Your Spending Habits)
If not watched closely, credit cards can be a little too convenient, leading to casual or unnecessary spending. Some people find it harder to spend cash on a “want” or unnecessary expense, but have no problem pulling out the plastic. Finding the combination of cash and credit card usage that works best for you will be a critical step in meeting your financial goals.
Always Pay On Time
Your payment history accounts for 35% of your credit score, so making payments late can result in a lower credit score when you’re account is 30 or more days late and reported to your credit report. Making your payment late, but not being 30 plus days late may result in fees and possibility of your account being restricted or interest rates increasing.
Make More Than The Minimum Payment
If you are finding that you are only able to make the minimum monthly payment each month, this may be a sign to review your spending plan and see what changes that could be made to help you pay more than the required monthly payment. It’s difficult to pay down your overall debt if you are making smaller payments. If you’ve charged more than you are able to pay off in a planned period, try adding more than the minimum and avoid using your credit card for future charges until you are able to reduce the balance.
More Isn’t Always Better
Having multiple credit cards to manage increases the chances of missing a payment or even losing sight of just how much you are spending when spreading balances over several cards. We may know what we owe on each card, but usually don’t identify with what the total balance of our credit card debt.
Don’t Max Out
Account balances account for 30% of your credit score, so spreading your purchases over several cards can help to reduce your utilization rate, which may help to keep your credit score in check. Having accounts or collectively having about 40 to 50 percent of your high credit limit will begin to drop your credit score. The amount you owe or balances make up 30% of your credit score. Staying aware of your balances and maintaining them at or below 40% of your high credit limit may help you maintain a stronger score.
I hope this two-part exploration into credit cards has given you a deeper understanding of the role they can play, for better or worse, when it comes to your financial health and achieving your goals. If you would like to speak with one of our financial counselors, one-on-one, to discuss your specific situation and how you can take a more positive approach to credit card use, please don’t hesitate to reach out to us via email at CCUFC@callfederal.org.