Using credit cards doesn’t have to mean going into debt; in fact, you can use credit to get rid of debt! These tips for managing credit card accounts – including how to improve your credit score – are from Ken Lin, CEO and Founder of Credit Karma. He also shares two things you might not know about your credit cards…
Before the tips, a quip:
“There are plenty of ways to get ahead,” says Paul Clitheroe. “The first is so basic I’m almost embarrassed to say it: spend less than you earn.”
Spending less than you earn and investing extra money can help you achieve your financial goals – and so can strategically managing your credit cards! For more info about credit scores and credit cards, read The Credit Repair Kit: Everything You Need to Know to Maintain, Rebuild, and Protect Your Credit. And read on for Lin’s tips for managing credit card accounts…
3 Ways to Use Credit Cards and Get Rid Of Debt
1. Watch your Credit Card Use (CCU). “CCU” is your total credit card debt / total available balance. If you are using more than 30% of your available credit in any month, you should consider increasing your limit, particularly if you are paying it off in full each month. Using lots of your available credit can be seen as a risk indicator and lower your credit score. To get rid of debt (or make sure you don’t go into debt in the first place!), pay off the credit cards with the highest interest rates first.
If you’re drowning in credit card debt, read 3 Ways to Cope When You Can’t Make Minimum Payments on Your Credit Cards.
2. Don’t let credit card debt ruin you financially. The average American has approximately $8,000 in credit card debt. Credit cards can be a slippery slope of spending beyond your means if you aren’t careful. Just paying the monthly minimum will keep you in debt for years. Find a way to pay off your credit card debt, perhaps with a loan that has lower interest rates.
3. Remember that choosing the proper credit card can save thousands. Credit card fees and rates can vary drastically based on your credit and purchase behavior. For the same credit grade, interest rates can vary by more the 10% based on the card. That is a lot in interest fees if you consider the $8,000 average in balances that most consumers owe! Annual, balance transfer, and convenience check fees can add another $100 or 3% to your overall cost.
2 Things You May Not Know About Credit Cards
1. Credit card balances that are reported to the credit bureaus don’t distinguish between revolving and paid-in-full balances. So even if you don’t carry a balance, you may still show credit card debt on your credit report. This is actually a good thing since active credit accounts can increase your score. As a result, using all your cards once every couple of months for gas or groceries is good for your credit. For more info on improving your credit rating, read 10 Facts About Credit Scores.
2. There isn’t one “official” credit score per person. The truth is that there are hundreds of different credit scores used by lenders, credit monitoring companies, and consumers. Consumers don’t need to worry about all of them so don’t pay for expensive services claiming to be the best. If it is a true credit score (i.e. one made from data from one of the three credit bureaus), you will be as good with one as you will with 100 since they are built the same way with the same data.
Ken Lin is the CEO and Founder of Credit Karma. He also contributed Should You Close Old Credit Card Accounts? here on Blossom.