Manage Your Credit Cards

Managing your credit cards properly is important for your financial well-being. Poorly managed credit accounts can lead to debt and financial hardship, and carelessly managed cards can put the security of your identity at risk. Nonetheless, with a bit of diligence, you can keep your cards secure, get the best deal possible, and manage your debts.

Steps

Understanding Credit Cards

1. Differentiate between charge and credit cards. Credit cards and charge cards both allow you to charge purchases to the card and pay for it later. However, this is where their similarities end. Where credit cards allow you a certain credit limit, charge cards have no set limit. Credit cards allow you to carry a balance between months and pay interest on that balance, but charge cards require that the month's charges be repaid in full at the end of each month.
2. Understand interest charges. Credit cards charge interest on balance not paid in full at the end of the month. So, for example, if you charged $1000 to your card during a month and then only paid $500 by the payment date, you would owe interest on the remaining $500 balance. Interest rates charged vary from 0 percent to upwards of 30 percent, depending on your specific card agreement.
   • Interest charges continue to accrue on your balance for each month that it goes unpaid, so it is always advisable to pay off your card as quickly as possible.
3. Know your payment terms. Your credit card use will be governed by your card agreement, which spells out what you will need to pay and when. It will also specify any additional fees. Look out for your minimum required payment each period, which is the lowest amount you can pay each month without the issuer recognizing a late payment.
   • You should also look at your cash withdrawal options. This allows you to get cash using your credit card if you need it, but can come with additional fees and interest charges.
   • There will also likely be a fee assessed for a late payment.
4. Recognize award options and limits. You credit card terms may also include provisions for earning rewards based on your use of the card. These are often a small percentage of the amount that you charge to the card and subsequently pay off. Rewards can be used for airline miles, free items, or cash, depending on your specific card agreement. However, there will be specific rules governing the accumulation and use of these rewards that you need to make note of.
5. Understand the possible effect on your credit score. A credit card can have a major impact on your credit score. On the positive side, a properly-used and paid-off credit card can increase a person's credit score. This benefit increases as you continue to use the card properly over time. However, if used incorrectly, it can wreak havoc on a good credit score. Credit reporting agencies penalize credit card users for late payments, high balances relative to credit limits (usually starting at over 30 percent), and defaulted accounts.

Selecting a Credit Card

1. Research credit card issuers. Many institutions issue credit cards. This includes banks, finance companies, and retailers. Your choice of issuer will largely depend on the nature of the card itself, but the choice of issuer can be important in some cases. For example, it may be easier to organize your payments or online banking if you get a credit card at a bank where you are an existing customers.
   • In addition, if you spend a lot of money each month at the same store, and that store has a credit card that rewards you for shopping there, it may make sense to get that card.
2. Recognize credit score requirements. Your credit score will affect what types of card you are able to qualify for, your credit limit, your interest rate, and other terms. Check your credit score before applying for cards so you know what to expect. Understand that you may not qualify for a credit card at all if your credit is very low (under 600). You may also be denied for credit cards if you are carrying too much debt or do not earn enough income.
3. Select a secured or unsecured credit card. Most credit cards are unsecured, meaning that you don't make a deposit to use the account. However, those with poor credit may only qualify for a secured card, which requires a deposit. This deposit is typically about $200. You can then charge up to that limit on the card each month. This can help those with poor credit build it back up.
   • The money is returned to you when you upgrade to a regular card or close the account (assuming you don't have an outstanding balance).
4. Identify the lowest interest rates from each issuer. Use a site like NerdWallet or CreditCards.com to compare different cards from the various issuers. Make sure you enter your credit score so you'll know which cards you have a chance of qualifying for. Look for the lowest interest rates possible if you plan to carry a balance between months. If you plan to pay off the card each month, look for a card with good benefits and rewards.
5. Confirm the presence or absence of any annual or initial fees. As you look through credit card terms, remember to also look for any associated fees. For example, many credit cards have annual fees. Some may also have initial fees that must be paid when you get the card. In addition, note any other fees that are mentioned. Your goal should be to get the card that is going to cost you the least amount of money to use.
6. Find the right rewards card. Finding the right kind of rewards perks on a credit card makes for a better deal, but there’s no one-size-fits-all reward card for everyone. It depends on your spending habits and lifestyle choices.
   • If you travel a lot, an airline rewards card might be best for you. Some cards give cash back and others give points you can swap out for various goods and services. There are a lot of sites where you can go to view and compare the rewards rates for different cards, but Nerdwallet has a lot of great articles on the subject.
   • Make sure you pay off your balance at the end of each month to get the full value from your rewards. Otherwise, they end up going toward making interest payments.
7. Ask about other perks. A lot of cards have benefits most people are unaware of, especially in the context of traveling. Many credit cards offer rental car insurance (so you don’t have to buy the extra from the rental company), trip cancellation insurance, among other benefits such as fraud and identity theft protection.
8. Apply for your card of choice. When you've found a great credit card, follow the links to apply for it. You'll have to enter a large amount of personal information and then the issuer will check your credit score and other details. These will be used to accept or reject your application. If you are accepted, you will receive your credit limit and account information, along with instructions on how to receive and activate your card.
9. Ask for latest “chip card." Although most people call them “chip cards,” they’re technically called EMVs, (which stands for Europay, Mastercard, and Visa). These cards contain computer chips within the card itself. That makes it much harder to counterfeit, making it more secure.
   • Your bank or card issuer will probably send you an EMV card without you even having to ask. But you might be able to speed up the process by making a specific request.

Using Credit Cards

1. Look for cards in the mail. When you were accepted for your card, you should have gotten an estimated arrival time for your credit card. Be sure to watch out for it in the mail and take it inside as soon as you get it. This will help prevent any would-be credit card thieves.
2. Note the details of card in writing and keep them in safe place. You'll receive a written card agreement when you get your card. Be sure to read over the agreement carefully. Then, store your card agreement in a safe place in case you need to refer to it later.
3. Take commonsense precautions. Just because you have a new chip card doesn’t mean you’re in the clear with respect to fraud. You still need to cover the PIN pad up when you complete a debit or ATM transaction, investigate any online merchants you deal with, and only conduct e-commerce transactions on secured sites (sites with the "https" prefix).
   • Your PIN number should be as secure as possible. Don't use your birthday or something else that a thief might easily guess.
   • While EMV cards are more resistant to skimmers (devices that steal your card information) than magnetic strip cards, nothing is ever foolproof. Right now, using your card as debit is a little more dangerous than using a card as credit, because of PIN overlay devices that can capture PIN numbers.
4. Restrict your use of the card as much as possible. This will help prevent overspending. While no one wants to overspend, it's very easy to do where credit cards are concerned. In order to avoid getting in over your head, try not to charge more in one month than you can easily go without.
   • For example, if you spend $300 a month on restaurant meals, it should be fairly easy for you to charge $300 on your credit card for the month and then make up the shortfall by cutting back on eating out.
   • However, you can and should use a credit card for business expenses that are reimbursed each month, emergencies, and assets that will last longer than the time required to pay them off.
5. Review your credit statement each month. Look over your credit score each month to check that your charges match your own records. Note any charges you don't remember and try to locate receipts or an explanation of that charge. If you find that there are charges you did not authorize, contact your issuer to dispute the charge. Most credit card issuers are happy to help resolve these issues.
6. Pay on time. Late payments are the easiest way to hurt your credit score. They make up about 35% of your credit score—the largest single factor. So do whatever you can to stay on top of them.
   • Set up an automatic payment scheme with your bank so your credit card bill is automatically drafted out of your checking account each month.
7. Pay as much as possible each month. Try to pay more than the minimum if you are able. This will keep your balance and interest charges low. Making the minimum payment on a credit card is the easiest way there is to never pay off the debt. While it is an easier short-term financial burden, you can end up paying many times more than you would have over the long run.
   • Even if you just pay a little bit more than the minimum, it makes a lot of difference.
8. Check to see if you qualify for certain perks. If you use and pay your card responsibly, you will start to build up the trust of your credit card issuer. In time, perhaps after a few years, you can try contacting the issuer to negotiate a more favorable card agreement. For example, you might ask for a lower interest rate, a reduced annual fee, or a higher credit limit. If you've been a good customer, the issuer might grant your request.

Managing Credit Card Debt

1. Consolidate multiple cards into single account. If your debt becomes unmanageable, it may help to transfer your balances to one card. By Choose a Credit Card with the lowest interest rate, you save yourself money when you're paying off your balance. Even though a lot of balance transfers can come with fees (but some don’t), it’s still usually worth it to switch to a card with a lower interest rate, because most people who are looking to transfer a balance won’t pay the balance off quickly enough to lose money from the transfer fee.
   • Again, Nerdwallet is a pretty good source to find a lot of balance transfer offers all in one place.
   • Be sure to avoid using your card until the debt is paid down or off.
2. Stop charging to your card. The best way to stop your debt from accumulating is to stop using your credit card. An old trick to stop yourself from doing so is to freeze your credit card in a block of ice. This will literally prevent you from using it until the ice melts, giving you time to rethink your purchase before making it. This is also useful if you intend to only use your credit card for rare circumstances, as it makes access much more difficult.
3. Talk to your creditors. Before you get too far behind, it’s important to talk with your creditors to let them know your situation. They may be able to work out a payment plan, a refinance, or just give you a little extra time to get current.
   • If you’re a long-time customer who makes payments on time, you can often negotiate with your card issuer for better deals. Ask them to waive annual fees, raise your credit limit, or lower your interest rate.
   • Even if you have missed payments before, it never hurts to ask. They’d often rather keep an imperfect customer than lose the same customer to a competitor.

References

See also

• Lower Interest Rates on Your Credit Card

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