Learning How to Use Credit Responsibly

The most vital component that impacts your power to purchase goods and services is your credit history.  The sooner that you learn how to use credit responsibly the quicker you will have good credit when you actually need it.  When you are responsible with credit, you will discover that your reward will be increased credit limits along with decreased interest rates.  This can lead to significant savings over time while increasing the overall amount that you are able to spend.    

There are four easy steps that you can take right away to start practicing responsible use of your credit. 

1)  Pay the entire balance on your card every month.  By not just paying the minimum payment each month, you are saving money in interest and building good credit.  By exercising the necessary discipline to pay the entire balance, you are learning how to use your credit responsibly.  As with any new habit, it may be challenging at first, but it will become easier over time and will discover that you also save money by spending less. 

2)  Pay your bill on time every month.  Late payments sabotage your credit history.  You might think one late payment won’t hurt, but the effects are disastrous.  Just even one late payment hurts a good credit score.  A good credit score can quickly turn into a bad credit score with just a few late payments in a short amount of time.  You will then spend years trying to rebuild a good credit history when it only took a couple of months to destroy.  However, sometimes bad things happen to good people and you may find it hard to make even a minimum payment.  If this ever happens, you should contact your lender before the payment is late since they usually cannot help after it is late.  They may be able to work out a special arrangement to help with your situation, and you might be able to avoid having a payment reported as late and still meet your financial obligations.          

3)  Never use a credit card to pay for credit cards.  A balance transfer from one card to another card and then back again is a method that some people employ to avoid making credit payments, yet on paper it appears as if they are making payments or even paying entire balances on time!  However, balance transfers used in this fashion can quickly set a financial trap that is impossible to escape.  Each transfer usually has a transaction fee, so with each transfer the balance increases.  After only a couple transfers, the balance is much higher than if the interest had been charged to the balance by letting it stay on the same card and just making a minimum payment. 

4)  Never charge beyond your budget.  An easy downfall for most people is to start charging outside a reasonable budget with the intent to pay for it later.  The total balance on any credit card should never exceed an amount that you can pay in full at any time.    

Using credit responsibly is simply exercising financial discipline and staying within a budget.  This will pave the way for a bright financial future and a good credit history.