Credit Cards

How to use a credit card wisely

Credit cards are extremely useful and valuable consumer tools, but if they're used irresponsibly, you can wind up doing yourself a lot of harm. Unmanageable credit card debt is a major contributor to the majority of personal bankruptcies. Whether you're planning to apply for a credit card or you've already got one, you owe it to yourself to understand how to use it wisely.

Responsible Credit Card Use

It's important to use credit cards only when you absolutely need to. Not only will this discourage frivolous spending, but it will also help keep your debt load manageable and keep your credit rating high. The closer you are to your credit limit, and the longer you carry a high balance, the worse the impact on . Consumer advocacy experts suggest maintaining a balance of no more than 30 percent of your credit limit.

If you do use your credit card regularly, the best thing to do is pay the balance off, in full, every month. At the very least, always pay as much as you can afford and keep your balance as low as possible. Creditors like to see consumers borrow responsibly, and if you demonstrate an ongoing ability to manage your debt well, you'll have an easier time getting personal loans from banks or securing a mortgage when the time comes to buy a home.

How to Apply for a Credit Card

Choosing the best credit card isn't easy, given the wide range of options available to consumers in today's highly competitive credit market. You need to look for more than a high credit limit — consumers who get approved for cards with credit limits beyond what they could reasonably afford to pay off are the ones most likely to wind up deeply in debt.

When you're filling out a credit card application, pay close attention to the terms and conditions associated with the card. Some questions you should ask yourself are:

  • Does this credit card charge an annual membership fee? If so, how much is it, and does it offer a lower interest rate to offset these charges?
  • What is the annual percentage rate (APR)?
  • Does the card have an "introductory" interest rate that's low for the first few months before it jumps to a much higher level? This often happens with student credit cards.
  • What are the over-limit fees and finance fees?

If you have a less-than-stellar credit history that you want to fix, consider applying for secured credit cards. Because these credit cards are prepaid or secured against other assets you control, you are almost certain to be approved for one. Used responsibly, these cards can help you build your credit rating back up.

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