The Essential Do’s and Don’ts of Credit

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Credit: Monstera via Pexels

Are you using your credit accounts properly? You might be making some credit mistakes that you’ll regret later on. Read this to learn the biggest do’s and don’ts with credit so that you can be sure that your accounts are in great shape. 

The Types of Credit

Credit Cards

A credit card is a revolving credit account. The owner of a credit account can borrow funds to make transactions (up to a certain limit). They will have to repay these transactions with interest. This replenishes the card’s balance, allowing them to use the credit all over again. 

Lines of Credit

A personal line of credit is an open-end credit tool that gives the user access to a certain amount of credit. As long as their account is in good standing, the user can withdraw funds from the line of credit within their credit limit and have them deposited into their personal bank account. You can click here to see whether you can apply for a personal line of credit and add this account to your financial portfolio. If you meet all of the essential qualifications, your application might get approved. 

The Credit Do’s and Don’ts

Do Pay Your Bills on Time

You need to pay your credit card bills on time, every time. 

If you have trouble remembering your bills, then you can sign up for notifications with your online banking. You will get a convenient reminder whenever your bill’s due date is coming up. 

You can also automate your payments through your online banking. How does that work? You arrange for funds to be automatically removed from one bank account and deposited onto your credit card whenever your bill comes in. Since your credit balance isn’t fixed, you shouldn’t automate the full payment — just in case you don’t have enough. Pick an amount that you’re sure you can pay every month.

What’s the problem with missing bill payments? You’ll collect a late fee for every late bill payment. If you collect enough late fees, you could lower your credit score. A low credit score often leads to higher interest rates, deposit requirements and insurance premiums, and it comes with a greater chance of getting your loan applications denied. 

Don’t Just Pay the Minimum

You’ll notice that you have the “minimum payment” option with your credit card bill. It will be a small fraction of your balance. The minimum payment allows you to pay part of your bill without getting a late fee — as you now know, acquiring too many late fees can be a problem. 

While using the minimum payment is fine every once in a while, it’s not a good habit to keep up with. The more that you depend on this option, the harder it will be to pay down your credit card balance. It will continue to grow as you accrue interest and add more transactions to the pile. 

Do Keep Your Balance Low

Your credit account’s limit is a boundary that you want to avoid — not one that you want to cross. A balance that’s close to the limit will be a challenge to pay down, especially when you consider how quickly it can grow with interest. If you’re not careful, you could max out your account and have no available credit to work with — only debts to pay off. 

This is why you should do your best to keep your balance low. Ideally, it should be below the halfway point. 

If your balance is creeping too high, you should invest more effort in paying it down. You can also ask your creditor whether you can increase the credit limit to give you more wiggle room to work with.

Credit: Monstera via Pexels 

Don’t Use It for Everything

Your credit card shouldn’t take on every single purchase. If you use it for everything from your phone bills to your morning coffee, you’re going to rack up a steep balance in a hurry. 

Try to prioritize purchases that need to be done with credit (for example, online shopping). Use debit or cash whenever you can.

When it comes to a line of credit, you should try to keep it for emergencies only. The credit tool isn’t designed to help you with everyday purchases, like your weekend groceries. Use it when you really need it, like when you have an urgent home repair that your budget can’t cover. 

Do Check Your Statements

Check your credit statements regularly. Scanning your transactions is an effective way to spot the signs of identity theft and financial fraud. If you notice any purchases that you don’t remember making, you should take action right away. 

Don’t Forget About the Perks

Don’t forget about the perks that come with your credit card! Are you racking up air miles with your purchases? You could use them to fund your next family vacation. Are you getting rewards? See whether you can cash them in for some new electronics. Take advantage of this feature as much as possible. 

These guidelines will set you up for success! Follow the do’s and stay away from the don’ts and get your accounts in order. 

Disclaimer: This content does not necessarily represent the views of IWB.

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