credit cardOnce again, I have come across an article in Women’s Day by Mary Hunt that I feel is worth sharing.  In “10 Ways to Use Credit Cards Wisely,” Ms. Hunt details what she believes are the best ways to manage credit cards.  Not only does she give her tips, but each suggestion comes with an “action plan” on how to best follow her advice.

Although I believe she has some good ideas, I don’t agree with everything Ms. Hunt has to say.  From reading it, it appears Ms. Hunt’s is coming from the suggestion that the reader has problems managing his or her credit.  I (on the other hand) feel like those that read my blog are already financially savvy enough that they don’t need babysitting.  Thus, I have added my own suggestions on how to get the most from whatever is in your wallet.

Mary Hunt’s 10 ways to use credit cards wisely

1.  Micromanage your account:  I probably go overboard on this!  However, it is important to register your account online and check it ever so often.  Issuers have been making a lot of changes recently, and it’s best to stay on top of your current agreement with them to avoid any fees.

2.  Keep your balances low:  If you are using almost all your limit every month, you are hurting your credit score.  The author suggests never using more than 30% of your available credit limit.  If this is impossible, it would probably be a good idea to request a limit increase.

3.  Watch when you pay:  This is one of your credit card company’s dirty tricks – changing closing and due dates without warning.  My solution to this has always been to schedule a payment for the complete balance on the the day my statements normally close.  By doing this, I never forget to make a payment and can notice early on if they have changed the due dates.

4.  Think twice before transferring:  I have never done a transfer, so I can’t really comment on this.  The author, however, notes that you will likely pay a fee of 3-4% on the  balance, as well as lower your credit score.

5.  Request a limit increase: This is a good idea if you are constantly charging up to your credit limit, because otherwise you will start lowering your credit score.

6.  Don’t apply for credit cards you don’t need:  This is good advice, because at a certain point, the number of credit lines will start to hurt your credit score.  Also, although it wasn’t mentioned the article, it is important to note that most issuers do a “hard pull” of your credit history during the application process.  Unfortunately, this will also lower your credit score.

7.  Keep accounts open:  The author makes the point that once an account is open, the damage has already been done.  Thus, she suggests keeping them open to prevent your credit score from being lowered.

I have done this myself on a store card I never use.  I wish I had never opened it to begin with, as I will never use it again; however, I don’t want to close it now, because I will lose that credit history.  Therefore, my solution was to cut it up, but keep the account number and contact information just in case I someday need it.

8.  Keep accounts active:  This is really important in this day and age.  As the author mentions, a closed account is never a good thing.  I would also add that you are likely to get your limit cut if you don’t make some occasional purchases with any given card.

9.  Lower your rate:  The author suggests calling your card’s customer service to request a lower rate.  She argues that if you are paying over the average rate (14.3%), you need to request that they lower it.

I don’t agree with Ms. Hunt on this point.  In fact, since I suggest you always pay your balance in full every month, it’s always best to focus on getting the most lucrative rewards programs available instead.  Personally, I have no idea what the percentage is on any of my cards, and frankly, I don’t care, because I don’t pay interest!

10.  Get the right rewards card:  Unfortunately, there is not a lot of choice today, as major card issuers are cutting back on their rewards programs.  However, I suggest you choose more than one, so that you can maxmize your rewards in every situation.  For example, I carry a Chase Freedom for everyday situations, a Discover Open Roads for when I purchase gas, and an Amazon Visa for purchasing books.  These 3 allow me to get between 1-5% cashback on every purchase I make.  Remember, it’s all about those nickels and dimes!

My credit card advice

Unlike many of my fellow Americans, I absolutely love credit cards!  They are invaluable tools if used with caution.  In my years, I have noticed that the people that hate them are usually the ones who have abused them and then subsequently refused to take responsibility for their actions.

In my mind, I like to think of a credit card as “the ring” from Lord of Rings.  It’s powers are immense, yet it corrupts the weak-willed.  With this in mind, here are some tips to help you better wield your card’s power:

1.  Never spend more than you can pay off at the end of the month!  To me, this is a no-brainer, but some people just can’t seem to control themselves.  Credit cards offer some of the worst type of loans you can get, so don’t use them as such!  Instead, consider them interest-free monthly “floats” which allow you to keep your cash in high-interest accounts while borrowing theirs. 

2.  Focus on the rewards program offered and ignore the interest rate:  If you follow the above advice, there is no reason to ever worry about the interest rate.  Instead, select the cards which will provide you the most rewards and start racking them up!

3.  Put every purchase you can on plastic:  After I have fulfilled my monthly rewards checking obligations, I put every purchase possible on my credit cards.  Not only does this allow me to earn hundreds of dollars every year, but it also affords me certain buyer protections that cash does not.

4.  Schedule a payment as soon as your statement posts:  I am a busy guy, so I tend to forget things.  Thus, I make it a habit to schedule a payment for the full amount on the day my statement closes.  This routine has kept me from paying interest and/or late fees due to forgetfullness.

5.  Schedule you payments in a way that allows 1 business day before the due date:  Scheduling my payments for the next to last minute allows me to get the most of the interest-free float provided by credit card companies.  However, I wrote “next to last” for a reason, as I like to leave 1 business day to correct any mistakes and to ensure sure my payment does not post on the next day.

6.  Carry more than one rewards card:  I mentioned this before, but it’s worth repeating.  The percentage on rewards cards usually varies depending upon what and where you are purchasing.  Thus, whether you are picking up clothing, gas, or groceries, you will always be prepared to get the most mileage out of your dollars.