How to Use Credit Cards to Add to Financial Power

Having credit can be a bad thing as we all know. However, young adults should be aware that establishing good credit, and not getting in debt over your head, can be beneficial if one wants to make a large purchase one day. There are ways to establish "good" credit, and one should take these into consideration at an early age before using the plastic money. When using credit cards, we can get the statement and open that envelope, and then realize we had no idea we spent so much! This leads to guilt and panic. It's important to look at how to use credit cards so they enhance your financial power, rather than diminish it.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Credit Card
• Credit Card Statements
• Computer or phone

1. Be sure to have one credit card that is in your name only. If you do not have a credit card on your own, you may find it difficult to rent an apartment, get a mortgage, a car loan, or any other type of credit by yourself. We have a profile known as our FICO credit score. This is a strong individual profile, and it helps lenders know whether or not a person is financially responsible.
2. Check your credit card statement every single month. Verify that you did make every charge on that statement. If you see charges you did not authorize, you may be a victim of identity theft. Notice the payment due date, and make it a policy to send in your payment five days before the actual due date. If you pay online, do it at least two business days before. Also, find the minimum payment due on your bill. Understand that the minimum payment usually represents only about 3% of your bill, which means 97% is left unpaid!!!
3. Third, avoid extra fees and higher interest rates on your credit cards. Apply for credit cards that do not have annual fees. Pay attention to fine print. Often times, credit card companies will offer a great, low introductory rate, but after a few months, this will increase tremendously. Ideally, your rate should be 10% or less. The rate you qualify for will largely depend upon that FICO score I mentioned previously. The more financially responsible you show you are (high FICO score), the more chance you have of getting credit cards and loans with low interest rates. If possible, try to pay your bill in full each month to avid interest charges.
4. Know the difference between good credit and bad credit. Good credit is money you borrow to finance an asset (for example, a mortgage for a house). Bad credit is any money you borrow that is not used to finance an asset. Believe it or not, a car loan is considered bad credit! This is because your car's value never rises. It always decreases. The only exception for making purchases that are considered bad debt are for emergencies only.
5. Commit to a strategy you can use to pay off old credit card balances. Don't look at this as a sign of failure. Instead, begin with a fresh start and make a decision to only use your credit card for emergencies. Keep your regular monthly charges limited to what you can pay in full when you get that bill. One strategy is to transfer your balance to a new card with a lower interest rate. Another way to handle balances from old credit cards is that once you have paid them off, stop using them so frequently! The best bet is NOT to cancel the card. This can actually have a negative impact on your FICO score and may lower it. It only makes sense to cancel them if they have annual fees.
6. Check your FICO score. Just about every bill you pay is tracked by three credit card bureaus: Equifax, Experian, and Trans Union. To get your FICO score, , there is no need to pay for all three. Once if fine, and the regular fee is $15.95. These scores range from 300 to 850. If your score is at least 760 you are in super shape. You can go to www.myfico.com. You will have three scores, one for each of the above mentioned bureaus, but let me repeat, you don't have to get all three scores.
7. Finally, be sure to check your credit reports annually. These are the actual reports from the three bureaus (as opposed to just the FICO score). You can get three free credit reports annually at www.annualcreditreport.com. You can also call 1-877-322-8228. By law, each of the three bureaus must give you a free report once per year. The importance of checking these annually is that if you find any incorrect information, you can contact the credit bureau and file the request for change with them. This is not an easy task, but it is necessary to keep your credit in good standing and use credit for financial power.