Credit cards can be a great financial tool when they are used correctly to help build your credit. However, they can equally become problematic if you overspend, do not make payments on time, or always keep your cards maxed out.
Whether you recently established new credit, are rebuilding bad credit, or simply looking for ways to reduce your credit card debt, take the time to review these suggestions and tips:
- Make payments on time. Even if you can only afford the minimum amount due, it is better for your credit score to ensure they are paid on time every month. Plus, you avoid late payment fees and penalties.
- Try to pay more than the minimum amount due. If possible, try to pay more than the minimum amount due. Remember, a portion of your monthly payment goes toward interest, so paying down the principal balance will take longer. If you are on a tight budget, try to pay the minimum due plus the monthly interest you were charged. This way, the full amount of the minimum due is going toward the principal.
- When making larger payments, pay higher interest cards down first. If you are able to make larger monthly payments, pay the extra on the card with the highest interest first. Not only will this help pay the card off faster, but it will save you some money.
- Look for credit cards with lower interest rates and balance transfer options. Apply for a lower interest rate credit card with a balance transfer option to pay off higher rate cards.
- Try to keep debt-to-income ratio below 35 percent. When applying for new credit accounts, lenders look at your debt-to-income ratio and prefer when it is at or below 35 percent.
- Keep spending within your limits. Know your own limits and never spend more than you would earn during the month, aside from unexpected emergencies.
- Avoid closing accounts that are paid off. It is satisfying to pay off a credit card and tempting to close the account to avoid using it. However, closing a recently paid off account can negatively impact your credit score. Instead, if keeping the card is too much of a temptation, cut it up, but keep the account open.
- Set your own credit limits at least 30 percent below the actual limits. Ideally, all of your credit cards should have at least 30 percent or more left in available credit. For example, if the card has a $1,000 limit, your personal limit should be $700. Maxing out your cards lowers your credit score and makes it difficult to be approved for new credit accounts.
To find out the current rates on your credits cards in Amarillo, Texas and available credit programs, stop by one of our credit union locations or call The People’s Federal Credit at (800) 234-9335.