Using Credit Cards To Maximize

Your Credit Score

🔎 Guide to Responsible Card use to BOOST Your Scores 📉

So, you have a credit card, but are you using it the right way to improve your credit scores? Let's look at two sisters. Both young and ambitious (not much different than yourself), but they are about 7 years apart. This article looks at a few decisions along the way for both Jennifer and Jessica. Although at different times, they are the same age as they reach the crossroads that would determine their financial future—the acquisition of their first credit cards. I'm sure you remember or are experiencing right now the eagerness and desire to embrace the world as a responsible adult. This however is a cautionary tale of adventuring into the world of finance. Follow along as each sister will embarks on their journey that would not only shape their financial habits but also set the stage for the future of their credit profile.

Newfound Freedom: Jennifer Gets Her First Credit Card

You've been there, the anticipation of receiving that shiny new piece of plastic. Oh, the adventures your life will take you on, now you have your very own credit card. When Jennifer, the older sister, turned 18, she saw the keys to her newfound freedom as endless. Where will she go and what will she buy? Think back to your first purchase on your credit card? Wouldn't it have been nice to know, what you know now? I can imagine, it probably wasn't worth the stress & cost of the high interest paid, that is if you made a payment at all. Just as many young people do, Jennifer went on a spending spree, thinking it's just a small expense. I'll just swipe it now and pay for it on my next check. Well, all those small charges from here or there added up to a statement to pay later.

Charging Ahead: Jennifer's Financial Struggles

As you can imagine, Jennifer wasn't keeping track of her spending. She had gone to Starbucks to get a coffee with friends, and it was declined. That's weird, she thought out loud, it just worked when I grabbed lunch a few hours ago. Not keeping track of the balance, Jennifer had not realized she had already reached her spending limit on the card. Confused and annoyed, she paid with some cash she had on her. Later that day, she viewed her online statement that she realized all the purchases she had made in the first month. Her heart sank into her stomach when she saw how high the balance had climbed. Jennifer's newfound freedom suddenly turned into disappointment, embarrassment, and regret. As it turns out her short-lived spending spree came with a mighty cost. As she sat wearing one of the outfits she bought as an enticing reward, now seemed like a burden as she found herself drowning in a sea of debt. How am I going to come up with the money to pay this, she thought as she stared down her $900 credit card bill.

A Scary World of Credit Card Debt: Jessica's view of credit card usage

Fortunately for Jessica, she was able to witness her sister Jennifer going through her self-inflicted troubles. Committed to not making the mistakes of her sister, Jessica decided to think differently, more responsibly. With her first credit card in hand, Jessica felt the power of being able to make choices of her own. Then she remembered the cautionary tales heard from her parents and some older peers and of course her own sister Jennifer. When approached with a buying decision, she decided to enforce a set of rules she came across online. She hoped embracing these guidelines would help drive her responsible usage, avoiding the embarrassment and regret that her sister struggled through.

Tips for Responsible Usage: Navigating Credit Card Pressures

Jessica wanted to avoid credit despair unlike her sister Jennifer. She learned that a credit card is not just a spending tool but a financial instrument that requires careful handling. With her first card in hand, Jennifer embraced these key tips to ensure not going overboard.

1. Limit Spending on Frivolous Convenience Purchases

A great example of self-control in credit spending comes from the old expression, "Need Not Want Not". Before making a purchase. Stop and think, do you need it, do you need it right now? If you can live without it, pass up the purchase. If you need it, reset your urge by determining if you need it right now. Tell yourself you will come back in 1-3 days to make the purchase. This will allow the feelings and pressure of the purchase to subside. If you decide to return to make the purchase it will be planned and hopefully fit in your budget plan.

2. Monitor Credit Statements

Monitoring your credit statements allows you to have more control of your financial situation. First, identity theft and fraud are at all-time highs. Regularly reviewing of each statement will reduce the risk of extra charges in the instance your credit card information was part of a data breach, card skimmer, or hack. Additionally, you will be able to see your shopping habits. It will allow you a rethink purchases you have made, for example reoccurring membership fees or subscription-based services that you don't need any more or are not using like the gym, social clubs, or streaming services.

3. Optimizing Credit Utilization for Better Credit Scores

A major factor in your credit score is determined by how you use your active credit accounts. It's around 30% of your credit score. So being able to see on paper how much you are spending divided by the limit the creditor gave you will allow you to make the most of your credit score. A Good Better Best Principle used by Credit Improvement Specialist at Credit Score Advocates is that it is good to be under 30%, it's better to be under 20% and it's best to be under 10%.

4. Stay Interest Free

The major killer to credit card debit is the cost card companies assess in interest. Remember interest is only charged if the card is not paid in full each billing cycle. So, make sure to pay your entire statement balance to remain free. A few tips to check are the charges in the statement period plus any charges that may have carried from the previous statement. If you pay the balance in full every statement period, you can avoid interest costs entirely, saving you hundreds if not thousands of dollars.

5. Limit Increase When Possible

Your parents or grandparents might say, "don't ask for a credit line increase" stating that "it will only want to make you spend more". While it is true that you need to be diligent when making purchases, this limitation may cause a decrease in your credit score. Focusing on credit utilization ratio again, (your balance divided by your limit) if you were able to increase your limit, your utilization ratio would decrease and your score would increase. Inversely, if you decreased your credit limit, your utilization ratio would increase and your score would go down.

6. Set Up Autopayments

On-time payments are worth 35% of your credit score. Ensure you never have to deal with late payments by enrolling in autopay for all your credit accounts.

Empowered Financial Future: Jessica's Success Story

The contrast between the sisters was stark—Jennifer grappling with the aftermath of uninformed choices, and Jessica standing tall, her financial foundation fortified. Jessica's journey became a beacon of hope, demonstrating that even within the confines of family, each individual's financial narrative is uniquely shaped by the choices they make.

Armed with insights from a credit education company and inspired by her sister's costly financial mistakes, Jessica chose a different path. She wielded these 6 keys of credit wisdom: responsible credit card usage, vigilant statement checking, maintaining a low credit utilization ratio, cutting high interest cost, leveraging limit increases, and building a strong credit history through auto payments.

With these keys as her guide, Jessica flourished. She navigated the complexities of credit with finesse, understanding that financial empowerment comes from mindful choices. Budgeting became her compass, responsible credit usage her shield, and vigilant statement checking her armor against financial surprises.

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