Buy Cards You Can Manage
Image Credits: Freepik
Credit cards provide endless benefits, from offering immediate money to building a lender-friendly credit profile.
However, things can go wrong in a jiffy if you don’t use the card wisely.
Yes, you’ll end up with an increased credit debt instead of an improved credit score.
So, how to properly use your credit card? Why is managing your credit responsibly important? What are the benefits? And what are the odds?
Let us guide you!
Disclaimer: We have discussed strategies to build credit and tips for beginners to use credit cards the right way.
Why Is It Important To Manage Credit Responsibly?
Image Credits: Pexels
Your debt rate decreases when you wisely manage your secured credit card and other debit or typical credit cards.
So when that happens, it leads to financial stability and security.
In fact, budgeting (snowfall, 50-30-20, envelope method) is the best way to use your card responsibly.
Managing your credit cards is important for so many reasons. Some of them are:
1. Rewards
Smart cards can help you earn credit rewards that might alleviate your financial stress.
Moreover, they also offer discounts at specific stores and on certain items.
2. Good Credit
When you don’t exceed your credit limit, your credit utilization stays in the good percentage range.
As a result, your Equifax credit score rises.
3. Travel Points
Credit cards can help rack miles, travel points, and airline discounts.
Yes, you can even get a free plane ticket using all your travel points, or you might upgrade your seating class.
Related Article: Use Travel Rewards Without Falling Into Credit Debt
4. Budgeting
When you use your credit card correctly, there’s no chance your debt will increase.
However, you need a proper budget for your fixed income to do so, as the convenience of money you get with the cards can urge you to overspend quickly.
5. Financial Planning
As we said earlier, you need a plan and a proper strategy to make your credit cards work in your favor.
So, when you do that, they become the absolute financial tool for your future financial security and money management.
Enough with the importance and benefits. Now it’s time to tell you how you can actually do that.
How Do You Manage Credit Responsibly?
Image Credits: Pexels
What does it mean to use your credit card responsibly?
In simple words, it implies earning cashback or other rewards, making financial purchases that help increase your credit score quickly, and clearing your balance monthly and timely.
However, sometimes, it can be too intriguing and daunting for a beginner to understand how credit works.
Agree, right?
So, here’s a breakdown of basic yet working tips that can help you manage your credit cards smartly:
1. Use What You Can Pay
That’s the first thing you must set your mind to:
“I won’t spend the money I can’t afford to repay!”
Kara Perez says you must not juggle through a bunch of credit cards just for the sake of welcome bonuses, promotions, and rewards.
This way, you’ll end up spending more money.
Yes, you might rack up an endless list of rewards but never actually use them.
2. Buy Cards You Can Manage
Followed by the last tip, don’t just buy every card you see with a tempting welcome offer.
- Whenever you receive a credit email explaining a new product, don’t go straight and “add on” the extra to your already credit services.
- The same goes for your new credit card
Buy the cards you can manage easily without falling into credit debt.
Don’t get the card and use it till the grace period, and then wonder what to do with it now.
3. Pay More Than Minimum
That’s the key tip that will help you in the long run!
When you’re just starting to manage your credit cards, you must practice the top credit tips so they can become a strong habit in your future.
And one of the best to do so is to pay more than the minimum on your credit bill.
In fact, experts also advise making the payment every 18th of the month.
4. Track What You Spend
You need to know what you are borrowing and then spending it on.
Are you someone who never checks their credit report? Yes? No? According to CBC, 57% of Canadians fall into the “No. Never checked it” category.
They never checked their credit score and believed doing so would only drop their credit rating.
Moreover, tracking your spending and regularly checking your credit report will save you from clerical errors and theft attacks.
5. Plan Your Spendings
This is the most important step to make or break your financial journey.
Yes, the cards provide the convenience of using the money immediately whenever you need it.
However, you might overspend when you do this without proper financial planning.
And overspending with a credit card will only lead to a money disaster.
So, increase your financial literacy and plan your spending correctly.
6. Keep Your Inactive Cards Open
Say you have 4 credit cards and only use 2 for your large and small purchases.
What about the other two? Should you close it? Well, if you ask us, no!
Yes, your inactive credit cards might impact your credit score, but closing a card will affect your credit profile even more.
7. Analyze Your Credit
You need to review and analyze the changes in your credit score whenever you try a new budgeting plan or a finance improving strategy.
Because otherwise, you never know what’s working in your favor and what’s turning against you.
- Usually, you get the credit report yearly, so how do you monitor your credit report?
- By checking your monthly statements carefully!
- It allows reviewing how much you spend, where you need to cut back, the update in your score, and your overall financial health status.
Moreover, it’s important to ensure you’re on the right credit card management path.
And monitoring your credit is the perfect way to do that.
How To Know You’re Managing Your Cards The Wrong Way?
Image Credits: Freepik
Reviewing your personal finances is equally important as analyzing your credit.
If you feel your finances are reducing and the debt rate is increasing, that’s a sign you have been managing your credit cards irresponsibly.
Here are some key points to note:
1. Credit Score Is Dropping
If you notice a continuous fall in your credit score, that’s a warning sign!
Yes, you need to change how you deal with your credit cards.
- The key tip is to use your credit cards like you would use your cash.
- You have to be precise and calculative whenever you purchase with your card.
In fact, it’s better to set a budget for your card, so you don’t exceed it.
Because otherwise, the drop in your credit score will reach the pit, making it difficult to right your wrongs.
2. Outstanding Balance Is Rising
Do you have a habit of taking your balance from month to month? Do you avoid paying your credit bill in full? Yes?
That’s why the balance is increasing every month!
Still, you don’t want to stop using your credit card as you don’t want to miss the perks of it.
Don’t worry; you don’t have to miss out on anything. Our credit debt relief tips guide will help you clear your bills!
3. Credit Limit Is On The Verge
When you almost reach your credit limit, your credit utilization increases, decreasing your credit score.
Which is, of course, a sign of bad credit handling!
When you say manage credit cards responsibly, you have to think from every expectation that includes calculating your credit score.
For instance,
- Credit history,
- Credit utilization,
- Credit limit,
- Credit debt,
- Credit mix, etc.
You have to consider all these factors and how you deal with them when managing your credit responsibly.
Credit Cards - Hit Or Miss?
Credit cards are a strong financial tool to earn points, borrow finances, build wealth and make money.
However, all that is possible only if you show the lenders that you know how to handle your money.
And a good credit score is the best way to do it!
Do you want to know how you can smartly use your credit cards to increase your credit score and build a strong credit profile?
Find your answers in this guide!
