So you have a few credit cards in your wallet, but you might be worried about the impending avalanche of debt that may fall upon your head or the looming destruction of your credit score due to a single mistake. Credit cards are helpful in a multitude of ways: financial security, fraud prevention offered by the creditor, or use in dire fiscal emergencies. But like most good things, they come with strings attached.

Credit cards are great for people’s credit score as it shows that the consumer is able to maintain responsible monetary behavior. Whenever a customer wants to open another credit card, that creditor will look at that person’s credit history and previous lines of credit to check their trustworthiness. Creditors don’t want to lend out money or have open lines of credit for people who may be delinquent on their payments, so it’s important to maintain good credit card health throughout the card’s life. Good credit health means a good credit score, which allows more monetary opportunities in the future, whether they be new credit cards or life-changing mortgages.

Avoid Late Payments

Late payments are incredibly detrimental to a person’s credit score. Creditors and credit bureaus view any late payments as a form of irresponsibility and delinquency, which may reflect badly on the consumer. Make sure to always pay the card on time. To avoid any late payments, it may be a good idea to set any credit card on auto-pay.

Avoid High Debt to Limit Ratios

Most credit cards will have a credit limit that was decided by the credit score you may have had when you opened the card. Most furnishers will look at a person’s debt to income ratio to see if they are able to pay off any debts, and a high ratio means more volatility with the consumer.

The best solution is to pay off any debts and lower any ratio below 30%. That means if you have a card with a limit of $5,000, you should keep that balance under $1,500 to avoid a bad score on your next credit report. 

Evaluate Your Credit Card’s Perks 

Many different credit card companies and banks will offer a card with various perks and benefits such as air mileage, cashback, or points toward a prize. The thing about these perks is that they might be a great benefit or they might not actually benefit you at all, or even worse, may even encourage your bad spending habits so that the creditor can collect more in interest. After all, credit card companies make money from the interest you accrue on your credit card, and if that interest has more value than the perks, it can be a losing situation overall. 

If you’re not using all the perks of your credit card, it may be time to evaluate your spending habits and if you really need that particular card. This is especially important if you are paying an annual fee for that card, for you may not be benefiting from that extra fee. However if you find the perks to be beneficial, be sure you are paying your card off in full.

Be Mindful of Interest

All credit cards have a set interest rate or Annual Percentage Rate (APR) attached to the card. That extra interest is applied to every credit card statement and compounded into the card’s balance. These extra fees from the interest rate may rack up over time, and it will become harder to get rid of the balance. 

Let’s take an example: Let’s say Dorothy has a credit card with a limit of $10,000 on it, and she has a balance of $3,000 on it. Her card is set at a rate of 14.60% (which is the national average in 2021). She decides to pay off her debt in $100 monthly installments.

• Balance: $3,000
• APR: 14.60%
• Monthly Payment: $100
• Months to Pay Off Debt: 38 months
• Total Interest: $704
• Total Payment: $3,704

So it would take Dorothy 38 months to pay off her debt of $3,000, but she has to pay an extra $704 in interest to do it. That’s about 19% of the total payment in interest alone. 

So it’s important to be mindful of your card’s interest rate and how much you should pay off all at once. Let’s say Dorothy decides to pay off the $3,000 with $200 a month instead.

• Balance: $3,000
• APR: 14.60%
• Monthly Payment: $200
• Months to Pay Off Debt: 17 months
• Total Interest: $291
• Total Payment: $3,291

By paying off the debt with $200 instead of $100, Dorothy is able to save $413 over time, and she’s able to pay off the debt twice as fast. Of course, the best way to avoid any interest at all is to pay off the debt all at once. 

Overwhelming? 

At times, credit cards and their individual small-print language can be too much for some people to wrap their heads around. Fix Your Credit Consulting has professionals who know the ins and outs of the credit card industry and can aid you in repairing your credit. Call us at (877) 212-2450 for a free consultation, so we can help you get your credit back on track.

If you have any questions, feel free to give us a call at 877-212-2450!

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