Choosing & Using Credit Cards

Although credit cards can be a source of temptation to overspend and incur debt, they can also be beneficial to use in emergencies, to build credit, or to earn points such as cash back rewards, frequent flier miles, or hotel credits. If you decide to have a credit card for any reason, there are some basic rules that you should follow to get the most out of your credit card.

First, pay off your entire credit card balance every month. Credit cards carry very high interest rates and only paying the minimum amount each month can end up costing thousands of dollars over the course of many years. One way to be sure that you have the funds to pay off your balance every month is to think of each credit card charge as a debit transaction and record it in the same way. That way, you have the money set aside to pay your bill at the end of the month and you know when you have reached your spending limit. If you overspend one month, be sure to pay as much as you can of your credit card amount due that month and spend less the following month to ensure you don’t carry a balance from month to month.

Second, read the fine print regarding annual fees, interest rates, and rewards before accepting any card. If you know that you might not be able to pay off your credit card bill entirely each month, you will want to get a card with the lowest possible interest rate. If you use your credit card for large purchases and pay off the balance each month, choose a card with rewards that you can use. Either way be sure that you fully understand the terms of the credit card before signing the agreement. Don’t hesitate to ask questions.

Third is to know how cards can positively and negatively impact your credit score.  Your credit score is based on the FICO formula which takes into account a variety of factors. One is the duration of your credit accounts. The longer you have had a credit card account or loan, the better it is for your credit score. Opening new credit card accounts frequently will negatively impact your credit score. Paying off your credit card bill every month and not charging the maximum amount on your card will also have a positive impact on your credit score. To learn more about your credit score, visit:

-Kathryn M.

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