Key Takeaways
- Pay your entire balance off (on time) every month.
- Always stay under your 30 percent utilization rate to maintain good credit.
- Research your awards programs carefully.
Many of you are familiar with the KISS principle (Keep It Simple, Stupid) that the U.S. Navy coined in 1960. With credit cards, KISS is the simplest implement in our money tool belt. The four important aspects to credit cards, in order of importance, are:
- Budgeting
- Building good credit
- Researching rewards programs
- Ease of use
1.Budgeting. You always want to be aware of your credit card balance throughout the month so you don’t bust your budget. Use credit cards for your real needs such as gas and groceries, but don’t use them for your wants. Use cash for those. That way, your monthly credit card statement can give you a good picture of how much you need for your typical monthly necessities.
2.Building good credit. Pay your entire balance off on time every month and stay below your utilization rate of 30 percent. Your utilization rate is the percentage of your total credit limit that you currently have outstanding. For instance, if you have two credit cards with limits of $5,000 and $3,000, respectively, then you have an $8,000 total credit limit. So, 30 percent of that limit is $2,400. Stay under that utilization threshold at all times and it will really help you maintain a good credit rating.
3.Researching rewards programs. Credit card companies offer a wide variety of rewards programs, from cash back to airline miles to physical free gifts to gift cards and more. You need to do your research here since credit cards have both an earn rate and a burn rate, typically one cent on the dollar. The interest rate on your card can be anywhere from zero percent to 25 percent. A lot of the programs bring your money over from another card at zero percent and, if you have good credit, you can get a rate of around 12 percent. If you have poor credit, you can expect rates of up to 25 percent.
4.Ease of use. Consider paying an annual fee if you’re a heavy credit card user, especially for your travel charges. It may be well worth it with the rewards that you receive for using a certain card.
Just remember, credit cards are an easy tool to use. If used properly, they can make everything about your life a lot simpler. But if used recklessly, credit cards can get you into lots of trouble.
Until next time–enjoy,
Gary