How to Use Your Credit Cards Wisely
There are three major factors that you should always consider, if you own a credit card.
When to use it
Don’t use a credit card for your day to day expenses. Even if you pay off the card every month, before any interest can accrue, you are still leaving yourself open to inadvertently overspending. Better to use cash and checks, so you always know where you stand, or try a prepaid card.
The other side of that, of course, is that if you leave your credit card in your wallet, and never use it, you’ll probably have your credit limit reduced. These days, it’s not even uncommon to have cards in good standing cancelled by the provider, when they’re not used. After all, they’re in the business of making money, and if you don’t use it at all, they make none. Use the card a couple of times a year, then pay it off, before any interest comes into play.
How to pay it
NEVER pay only the minimum amount! By doing so, you will be paying more interest, and simply extending the time it should take to pay it off. Always pay more than the minimum, and if possible, pay the total amount due each month.
When to cancel it
It is probably more appropriate to outline when NOT to cancel a credit card, since it is rarely advisable to do so.
1. Never close any credit card that still has a balance.
When you close a credit card that still has a balance, your total available credit is lowered to $0. Since you still have a balance on that credit card with no credit limit, it looks like you’ve maxed out.
2. Never close your only credit card with available credit.
Closing out that card will decrease the total available credit and increase your credit utilization, which also affects your credit score.
3. Never close your only credit card.
Since your credit score takes into consideration the different types of credit you have, keeping a credit card will add points to your credit score.
4. Never close your oldest credit card account.
Closing out your old credit cards shortens your credit history, making it look as though you have a shorter credit history.
5. Never close the credit card with the best terms.
If you have a credit card that has a low interest rate, no annual fee, or other perks such as travel insurance, keep it.
The right way to close a credit card is by sending a written notice to the card issuer. If you’re going to close a card out, you should request written confirmation that the account was closed in good standing, for your records. Always be just as selective about the credit cards you close as the ones you open.