Your credit card can either be your best friend or your worst enemy. It simply depends on how you utilize this tool. For some, a credit card is limited to emergencies (New shoes or playoff tickets do not constitute an emergency). Others use their credit cards more frequently. Regardless of your preferred method of use, there are several ways to effectively use credit cards to build your credit score.
The first rule with credit cards is to use self control and take charge of your spending. Your credit card is not the equivalent of a get-out-of-jail-free card. Although cash is not leaving your hands, you are still spending money, and that is money you will have to eventually pay back with a lot of interest. Simply because you can purchase an item does not mean that you should. If it is not something you need or if you are tempted to use credit to buy something you cannot afford, it is best to be patient, and leave it on the shelf.
Stay in control of your credit card debt by not accepting every credit card offer you receive in the mail. If you are not an experienced credit card user, it might be best to practice proper spending with one credit card before you decide to start a collection. Too many credit cards will only further tempt you to purchase unnecessary items, and multiple payments will quickly become difficult to track, which could ultimately ruin your credit score.
One of the best things your credit card can do for you when used properly is build a good credit rating. Keeping the balance at less than half the available credit, paying your bills on time, and paying more than the minimum due each month is a recipe for an excellent rating. A good credit score allows opportunities for lower payments on other monthly bills, such as your auto insurance. The best way to use your cards is to make small purchases each month that you know you are capable of paying off when the bill comes.
Although building your credit rating can be one function of having a credit card, credit cards often come with other incentives. Many credit card companies offer rewards like cash back or points for every purchase. While these rewards may seem enticing, the cost of the interest added to the purchases you make is often more than the incentives are worth. Do not allow a reward lure you into purchases you do not need to make. Those benefits are only effective if you use your credit card wisely.
A credit card can be a useful tool, allowing you to build your credit rating so that you can obtain lower interest rates on car and home loans. To be an effective tool, however, you must be in control of the credit card and not let the credit card control you.