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Responsible Credit Use

Living without a credit card these days seems almost impossible. You need a credit card for most online purchases, to rent an automobile, to book hotel rooms, and even for identification purposes in some cases. While credit cards can provide many conveniences, they can also create a huge financial headache if misused. Responsible credit card use requires discipline and knowledge about how credit works.

When you walk into a store and make a purchase with a credit card, you've basically bought an item or a service on loan. In other words, you didn't pay for that purchase when you walked out the door. But, you will pay — and often with interest. If you look at credit use as a short-term loan that must be paid back within 30 days, then you'll stay well ahead of credit card pitfalls and avoid most interest payments as well.

Building Credit

If you manage to use your credit cards like short-term loan resources that are paid in full and on time, you'll build good credit history. A superior credit rating will keep your interest rates low and will enable you to apply for larger loans for automobiles and home mortgages. Good credit can also affect your chances of obtaining a job or that nifty loft in the city. Additionally, you'll avoid overusing cards because you'll stay within your budget with this plan.

If you haven't built up a credit rating, you might find it difficult to obtain credit. Why? Because it takes good credit to build credit. While this answer sounds like the cart leading the horse, you can manage to turn that around to your advantage, especially as a student. Students are considered good "risks" for credit card companies as those companies assume that parents often will bail their teens out of credit card debt. On the positive side, there's no better time to begin to build credit than as a teenager, as a good credit history that begins this early can enable a teen to have more positive financial opportunities as an adult. Check out our resources for students, and read the following tips that focus on how to build your credit:

  • Nine Ways to Build a Killer Credit Score — Liz Pulliam Weston from MSN Money offers nine tips for beginners and for those who have lost their footing in their credit scores. Weston mentions that college students are often targets for credit card companies, and she's correct. As a student, look for cards with no annual fees and low interest rates.
  • Tips for Building & Maintaining a Strong Credit History — StudentMarket.com provides tips on how students can handle that new credit card.
  • Use a calculator to keep it real — College students have it tough, because expenses can be overwhelming. Although it's easy to yank out that credit card to pay for an inexpensive sandwich, you might sit down with a calculator to understand how much that sandwich will cost if you use a credit card and don't pay it off immediately. This tool might convince you to dig into your sofa cushions for pennies instead.
  • Can you build good credit with a low spending limit? — Young Money says "yes," even if you begin with just one card with a very low spending limit; but, only when you make on-time payments over a long period will this card — among other forms of credit — contribute positively to your credit score.

About Credit Scores

Your credit score will follow you throughout your life, and it will affect anything that you attempt to accomplish in the financial world. Your actions can turn this score into a monster or a friend, so it's a good idea to know how credit scores work. You can then plan your actions and make that score your pal.

Credit Card Leverage

Leverage is all about receiving rewards for using your credit card. You might be interested in a cash back card or in travel rewards, or you might want to start collecting more airline miles. Leverage means doing more with less, so it's not so much what you do, but rather how you do it. And credit card companies are willing to help you with that "how" with points, lower or no interest rates, and other incentives for using their cards. If you don't pay off your cards on time, be sure to add late charges and interest rates into your side of the bargain. If you don't pay off your cards each month, you may not be doing more with less!

  • Business Offers Rewarding Way to Leverage those Credit Card Bills — It makes sense for businesses to use this credit card strategy, as they can utilize larger budgets to achieve certain goals. Business Journal validates this strategy with this article.
  • Transfer Your Balance — If you're looking for low regular APR as well as a low or 0 APR on balance transfers with no transfer fees, then these cards are for you. But be careful about entering into what is known as "credit card arbitrage".
  • Learn How to Use Arbitrage — Read how one blogger uses zero percent credit cards to make money. If you think that arbitrage is a scam, think again. It just makes sense to use money to make money. Just be aware that there are severe risks with this strategy.
  • Don't Bother with Arbitrage — Another blogger takes a stance against arbitrage and provides reasons to avoid this practice, especially if you're not responsible or disciplined with your money.

Contactless Credit Cards

Contactless credit cards may look just like your magnetic stripe cards, but they represent the new wave of RFID (Radio Frequency Identification) cards offered by banks and credit card companies today. Learn more about these cards so that you can avoid problems presented by this new technology:

  • Contactless Credit Cards — This easy-to-read and succinct article explains everything you need to know about contactless credit cards. You also have access to links that will explain this technology in detail.
  • Advantages — Technovelgy offers some ideas about the advantages to contactless credit cards.
  • Disadvantages — Just to balance the score, Technovelgy also provides disadvantages to using these cards. Use the links located at the bottom of the page to learn more.
  • Five Tips to Stay Secure — This article explains RFID credit cards and offers five tips that will help you to stay secure when you use contactless credit cards.

Pay Off Balances

Credit scores are tricky. For instance, you might think that you've improved your credit score if you've paid off and closed your long-overdue accounts. But, you may have learned from the links listed above that it would be best to keep some accounts open and that a quick payoff may not contribute one whit to your credit-worthiness. Learn more about how to pay off those debts and maintain a decent rating when possible from the resources provided below:

  • What Debt to Pay Off First — Bankrate.com suggests that you pay off the card with the highest interest rate first when you plan to get out of debt. But, they also offer an alternative to help you feel as though you're making progress.
  • Nine Ways to Pay it Off — Motley Fool suggests bankruptcy as a last resort when you're in over your head with debt, but you have eight other venues to try first before you go that route.
  • Calculate your strategy — Financial Calculators uses a Java solution to help you calculate how long it will take for you to pay off your credit cards. This calculator allows for annual fees, interest rates, and new charges.
  • Invest in Your Debt — Jeffrey Strain at TheStreet.com suggests that the best investment you can make is to pay off those credit card balances. Where else can you make a double-digit return on investment?

Rebuild Credit

Bad credit is similar to no credit, only you have black marks that might go against you instead of a clean slate. You still need to prove yourself to rebuild your credit, and some companies are willing to help you out with secured cards, or with cards for folks who have bad credit. These cards usually demand an annual fee and may even ask for a deposit or a savings account that will equal the amount that you plan to charge on that card. But, if you use these cards wisely and follow the advice listed below you could rebuild your credit within a few years.

Learn about Fraud and Scams

Two big concerns that come with credit card ownership are credit card fraud and identity theft. Credit card fraud occurs when someone has accessed the information contained on your card and has used it to purchase goods and services without your authorization. Identity theft occurs when someone has used that credit card information and possibly other resources to steal and use your identity.

Everyone is susceptible to credit card fraud, especially as thieves become more expert with their tricks. If you stay on top of scams and frauds, you can protect your credit rating and save time as well as money. If you have elderly parents or young teens who are unaware of these scams, introduce them to these tips on how to protect their credit.

  • Avoiding Credit and Charge Card Fraud — Once again the FTC comes through with sensible steps on how to protect yourself against fraud.
  • 21 Tips to Protect Yourself — Scambusters offers some additional information on how to protect yourself from scams and frauds.
  • Check and Card Fraud — This guide, offered by the Center for Problem-Oriented Policing, not only offers information on how to protect yourself but also provides insights how theives use cards and checks in their scams.
  • Learn about Phishing and Pharming — The Anti-Phishing group offers solutions and answers to problems and questions about these crimes.

Resolve Identity Theft Problems

Credit card problems can usually be resolved, but they take time, energy, and money. The following resources can help you to learn more about responsible credit card use so that you can avoid any pitfalls and instead create a safe and positive environment to build a solid credit reputation.

  • A 24-Point Recovery Checklist — Use this list to help you keep your wits about you if you realize that your identity has been stolen.
  • FTC Identity Theft Site — The FTC offers further information about how to protect yourself and how to resolve this problem if you're a victim.
  • Identity Theft Resource Center — This nonprofit program offers different resources than the previous two offerings, including current laws and a victim resource database.