11 Credit Card Rules You Should Follow
Credit cards are a pretty controversial topic in the money world. Are they a good thing to have? Should you avoid them all together? What credit card rules should you be following?
Famous radio host and money guy Dave Ramsey believes credit cards are evil for 99.9% of situations and should never be used. This is the only thing I don’t agree with Ramsey on.
If you know how to use them correctly, credit cards can help you build a great credit history and give you lower interest rates for your future mortgage. It’s not a hard science, but here are 11 credit card rules you should be following.
11 Credit Card Rules You should be following
DON’T APPLY FOR/HAVE TOO MANY CARDS
Every time you apply for a credit card there is a hard inquiry put onto your credit score which is going to lower it. Bad. Applying for too many cards really quickly just to see what sticks is going to decrease the number of cards you’ll actually be accepted for!
Once you’ve had the cards for a while the number you have won’t affect your credit score long term.
Having more than one card can help your credit utilization but this can easily be done with fewer cards that have a higher limit and a low balance. Don’t understand credit utilization or your credit score? Check out our post on credit scores!
MAKE SURE YOU GET A REWARDs CARD
Every credit card company or bank offers some kind of reward card. You can earn cash back, groceries money, free movies, or travel credits. Sounds good huh?
A credit card without a reward program is just a waste of an account! Personally, I have 2 credit cards, one is a cash back card and the other is a Scotiabank Scene card which gives me points towards free movies!
AVOID CARDS WITH AN ANNUAL FEE
Credit cards that have higher rewards usually come with an annual fee as well as the regular interest rate. This can be anywhere from $5 to a couple hundred dollars a year.
This is money that you just don’t need to spend. It’s sometimes a good idea if you use credit cards wisely but why waste the money unless you’re absolutely financially stable. There are plenty of good rewards cards with no annual fee that you can grab.
KEEP YOUR LIMIT LOW
My first card had a credit limit of $1,000 and I didn’t increase it for 4 years because I never had to. I’ve recently started to want to travel and will need a higher credit limit to be able to charge tickets or rooms before I pay them off completely. Now my limit is $2,500. I don’t want it any higher.
There is a very intense trap that you can fall into when you increase your credit score. It tricks your brain into thinking you have more money when you don’t. The more money you spend on the card, the more interest you’ll pay. Keep your limits as low as you can for your lifestyle.
ONLY USE THEM WHEN YOU DON’T NEED TO
Dave Ramsey always says “If you can’t pay CASH you can’t AFFORD it”. This is so true. If you need to use a credit card for an emergency, you should’ve planned ahead and started an emergency fund.
If it isn’t an emergency chances are the thing you’re charging to your card isn’t necessary for your life and you don’t really need it.
ONLY BUY WHAT YOU CAN AFFORD TODAY
If you don’t have the money in your account right now to pay for whatever you’re about to charge on your credit card, wait. You don’t have the money so you can’t afford it.
Don’t get stuck in the thought process that you’ll have the money to pay for it next month and you’ll pay it off then. If you throw something on a credit card you’ll end up paying more money than the item was worth because of interest rates!
DON’T CARRY A HIGH BALANCE
Carrying a high balance month to month is going to create so much interest in the long run. You’ll end up paying hundreds of dollars a year in interest which is just money you’re paying so banks can get richer and you can stay poorer.
In addition, carrying a high balance on your card is going to hurt your credit score because of your credit utilization.
PAY WAY OVER THE MINIMUMS
If you pay just the minimum payment each month on a card you’ll be paying it off for decades. Minimum payments hardly even cover the interest that you’re being charged let alone actually paying down the principal on that account.
If you want to pay down your credit card quickly you need to attack the full amount, not just minimums.
KNOW YOUR INTEREST RATES
Do you have cards that are at different interest rates? If so, it’s always smarter to know and understand them. If you need to charge a big purchase to a credit card for whatever your reason is, charge it to the lower interest card always. Don’t make an exception on this.
This will also help you understand which cards to pay off first. If you have a card with a 20% rate and another with a 12% interest rate, pay down the debt on the 20% card first because it’ll cost you more money in the long run.
TRACK YOUR SPENDING
Knowing where your money goes is a key to being smart with credit cards. People often fall into the trap of charging little items here and there and acting like it’s not a big deal. If you charge a $2 coffee to your credit card every day for a month that’s $60 that you didn’t plan to spend. Once again, if you can’t afford to pay cash then you can’t afford it.
Fully understand where your money is going to really know how you use your cards and how you could use them better. Make sure to have the credit card company or banks app on your phone so you can see where the money goes easily.
KNOW AND UNDERSTAND YOUR CREDIT SCORE
Understanding how your credit score works is going to help you to understand how to use it to help your future. If you’re completely clueless on how credit scores work, please read our post on how they work and how to improve them. See it here!
If you have any other credit card rules you think people should follow let me know in the comments down below!
Thank you so so so much for reading!