Responsible Credit Card Use
Why should we care what you do with your credit cards? As responsible lenders, we want to educate prospective home buyers that may need a little help in the credit department. Why? Responsible credit card use can improve credit scores and assist with a smooth mortgage loan approval process – something that we all want. With that said, here are a few tips for responsible credit card use.
DO’s & DONT’s of Responsible Credit Card Use
- Don’t Use Your Card for Everyday Purchases – A credit card should not be used as a substitute for cash. Those that use their credit cards to purchase gas, groceries and other disposable items are more likely to build debt. For everyday purchases, pay with your debit card not your credit card unless you plan to pay off your balance in full every month (which most people don’t do).
- Do Pay More Than the Minimum Payment – Have you really every looked at your credit card statement? Somewhere on your statement is a little table that says how many years it will take to pay off your credit card debt if you only make the minimum payment. The minimum payment is simply the lowest amount you can pay without your account going into default or incurring fees and penalties. Look below for an example of a minimum payment table. Look for this type of table on your own credit card statement.
- Don’t Close a Credit Card Account – While it may be a good idea in some cases, closing a credit card account can sometimes hurt your credit score. Avoid closing cards that have a balance or are a significant part of your credit history. If you are considering a home purchase, consult a licensed mortgage loan officer before closing or opening any new accounts. A loan officer can help you make a decision that will be most beneficial to your credit score – a key part of the mortgage loan approval process.
- Do Try and Negotiate a Lower Interest Rate – If you are receiving offers for credit cards that offer lower rates than your current card, contact your credit card company and discuss the offers you are receiving and if they are willing to work with you. Don’t be afraid to remind them how many years you have been a customer or how many months you have made consecutive on-time payments.
- Don’t Use Credit Cards to Buy Things You Can’t Afford – If you can’t afford a purchase today, you are not likely to afford it anytime soon. Spending more than what you make is easy to do with credit cards and can lead to longer term debt problems. The sooner you adopt healthy habits for credit card use, the better.
Credit Cards and Credit Scores
Your credit report records your credit card balances, your minimum monthly payments, and whether you make payments on time. High credit card balances (relative to credit limit) and late payments can be detrimental to your credit score. If you are interested in becoming a home owner, a good credit score is essential.