Tuesday, February 10, 2009
The Art of Credit Card
by Greg Lipinski
Most Americans carry between 5 and 10 credit cards. Some, they say, carry up to 50. While others detest the idea of having a credit card altogether. It makes sense; we have a very diverse society. Some people need immediate gratification, while others will work overtime for 3 years to purchase a product, service, or otherwise. Some are eligible for more credit than others. There are a variety of factors that play into this situation. However, no matter your situation, there are ways to properly utilize your credit card.
Using credit cards has a variety of benefits (emergency funding, establishing credit for larger purchases, etc.) but needs to be used wisely so as to not have your spending come back to haunt you later in life. First and foremost, experts say that a range of 2 to 6 “credit vehicles” is acceptable. The term “credit vehicles” includes credit cards, car loans, mortgages, etc…. all forms of credit. This means avoid cards that are marketed primarily with their deals attached to them; they tend to rack up in numbers and can ruin your credit score. Examples of these can include card offers at sporting events or store sponsored cards that people open to receive an initial discount. Be sure to have a widely accepted card, such as a Visa, Mastercard, or American Express.
Making purchases on a credit card is a good thing (because it builds your credit score), however, you must follow these two rules:
1) Pay them off regularly, and if you can’t, make the largest payments you can make.
2) Never reach your limit. Experts say to keep your debt ratio under 50%. This means if you have a card with a $4,000 limit, don’t rack up a balance about $2,000. If you have a large purchase, split it between two cards.
Follow these rules and you’ll find yourself in good standing with creditors, which can help immensely later in life when you might need funding for any sort of endeavor. And if you refrain from credit cards completely or haven’t gotten one yet, don’t fret; you also can open a line of credit on factors other than credit history. Banks can look at your bank accounts, employment history, and history of residence to assess your credibility, which could come in handy if you’re short cash in the advent of an emergency or an opportunity you just can’t pass up.