So much about credit cards gets twisted and contorted to the point that you aren’t sure what to believe.
Furthermore, you end up making bad decisions just based on those comments, when really the reputation of credit and using credit cards needs a serious overhaul or a good public relations job for consumers and individuals alike to start truly understanding how to use them properly.
What we have now is a hodgepodge of tips that range anywhere from smart to silly and everything else you can think of in between.
Case in point: has anyone ever told you that you should use credit cards all the time and as much as you can to show you can pay them back on a regular monthly basis? How about the advice that suggests you should close unused credit cards right away, no questions asked?
Both of these are classic tall tales that should be modified and downright avoided when you really look at the repercussions that could come from doing this.
Let’s take a look at the first question, the one stating you should rack up high credit card bills and start paying on them so you can come off as a good financial solider who can pay bills on time.
This is downright dumb: your balances versus your actual credit limit make up your credit utilization and that needs to be low, so you shouldn’t be carrying a $5,000 credit card balance on a card with a $5,500 limit. Lower balances are always better, so if you want to show you can use a credit card and pay it off the right way, start with spending $50 on a shirt or $75 on a pair of jeans on a credit card and pay if off in full the very next month.
You’ll have no problem building credit like that, in small, manageable chunks first.
The second piece of “advice” regarding closing out unused or credit cards with zero balances also hurts you more than it helps.
Credit history and having a longer tale of the tape so to speak means that older, unused cards show just how long you’ve been able to manage credit effectively. The longer the credit history, the better, so closing old cards not only hurts in that regard but also tightens that aforementioned credit used versus available, too.
Credit cards can be used effectively so completing swearing them off isn’t the right call, but using them in a way that helps more than it hurts is advisable and, actually, quite feasible.