A card is a tool—it is not bad or good on its own. Its strength or weakness is in how you use it. Take a look at some of the basic rules of using a credit card responsibly so that your financial decisions in the future will be more informed.
Use Credit Cards for Good Debt, Not Bad
Bad debt is also known as consumer debt, and it is debt that does not bring you profitability in the future. Many people mistakenly think that all debt is bad debt, but it is not. You can have good debt on a card. Good debt is debt that brings a return with it. Educational debts, refurbishing a house, buying a car to get to work—these are all forms of good debt. In short, if your debt gives you a new avenue to pay off the credit that you use, it is good debt.
Use No More Than 30% of Your Total Debt
You can use debt as a tool to build your credit, and a card can play an important role in this. However, in order to improve your credit score with a credit card, you must spend no more than 30% of the total available credit that you have. If you spend over this amount, the credit rating companies will assume that you are being irresponsible with your credit. This will actually lower your credit score.
Use Credit Accounts, Not Your Card
Another trick you can use to raise your credit score is to simply have credit accounts open that you do not use. Yes, this means that you may have credit cards that you do not use. This raises your total amount of credit available, and it gives you more leeway to actually use credit in your everyday life. Again, adhere to the tip above: do not spend more than 30% of the total amount of credit that is available to you.
Use Credit as a Cash Flow Tool
One of the responsible ways to use a card is to shore up little breaks in your cash flow. If you have to pay a bill that will cause you to have fees and penalties if it is late, it is okay to pay this on a card. When you get your next paycheck, you immediately pay back the card that you used to pay the bill. In this way, you can avoid any late fees that would occur, and you also get to keep the service that you are paying for. In most cases, this is usually a utility such as lights or water.
The tips above will show you how to use a card responsibly so you never have to worry about using it in a way that will put you more in debt. Pay attention to the total amount of credit that you have and the amount of credit that you are using. If you do this, you can use debt as a tool to help you positively in your financial life.
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