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CREDIT CARDS

Credit Cards are convenient, easy to use, and provide the ability to buy now and pay later.  But using a credit card means you have been loaned money to make your purchase and that money has to be repaid.  If used appropriately, credit cards can help you establish good credit, which will provide you access to financial resources for major purchases in the future.

A few things to remember in order to build good credit:

  • Manage your debt. 
    • Keep your debt levels manageable.
    • Keep track of your purchases and avoid large impulse buys. 
    • Don’t use a cash advance to pay for normal, daily expenses or to make a payment on another card.
    • Never borrow more than 20% of your annual net income.
    • Never let your monthly card payments be more than 10% of your monthly net income.
  • Choose your card carefully. 
    • Don’t choose a card just because there’s no annual fee or to get a free T-shirt. 
    • Shop around for a card that suits your borrowing habits. 
      • If you’re able to pay in full each month, choose a card that offers a rewards program.
      • If you expect to carry a balance from month to month, which means you’ll be charged interest, look for a card with a generous ‘grace period’ (the amount of time before your payments are due) or a card with a low interest rate. 
    • Read the card agreement carefully and understand the grace period, annual percentage rate (APR), all fees and charges, repayment terms and credit limit (the maximum amount you can borrow).
  • To avoid or minimize interest charges, always pay as much as you can. 
    • Pay your bill in full each month regardless of the ‘minimum amount due’ listed on your bill.   This will avoid unnecessary finance charges and/or other fees, and improve your credit score.
    • By paying the minimum payment due each month, it will take longer to repay the debt and cost you more in interest charges.  The amount you pay in interest and fees could exceed your original purchase amount. 
  • Pay your bill on time. 
    • This will help you avoid a late fee of about $35 or more each month.
    • One late payment may cause the interest rate on your card to default to a significantly higher rate.
    • Continued late payments may be reported to the 3 major credit bureaus as a sign that you have problems managing your finances.  It can also affect you when you apply for a job, housing or a future loan.
    • If your credit rating gets downgraded, your card company could raise your interest rate, reduce your credit limit or even cancel your card.

 


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