How you manage
your credit cards is a key measurement that credit reporting agencies use when quantifying the credit rating of an applicant
Card holders who pay their card balances
on time, at the required amount, will
receive a favorable credit rating that
translates into lower interest rates on
mortgages and consumer loans.
Card holders who are late in paying their
credit cards payments, often not paying
the required amount as due, will receive
a less-than-favorable credit rating that
translates into rejected applications
or higher interest rates for mortgages
and consumer loans.
Review techniques for managing credit card payments
review our discussion for managing loan debt. It provides excellent techniques for payment and debt management: view techniques
We have two
credit card management programs for review:
Program
A: for card holders who
control their credit card use and
payoff credit card balances in full
each month.
Program
B: for card holders who
carry credit card debt and pay only
the minimum balance each month.
Manage Credit Card Use:
Program A: Maximize Credit Card Benefits
These steps are for
card holders who have the discipline to
control credit card purchases.
Your objective under this program is to
build a usage pattern that strengthens
your credit rating and builds credit card
benefits.
Step 1:
First, you will treat your credit card
like cash, deducting from your money account
the purchases you make with your card.
You can either deduct the amount by making
an entry in your checking register, or
using your Personal Financial Management
Software (PFM) such as Quicken® or MS
Money®
Basic rules for this card management program:
— keep good accounting
— record every transaction
— deduct money from your account
for each purchase
Step 2:
Pay the entire balance each month. Never
carry a credit card balance. The money
to pay the credit card balance should
be available from the money that has been deducted from your money account.
Step 3:
Limit your credit cards to 2-3 cards maximum.
Select your cards with the following features:
Note that on average, credit card users
spend about 10-12% more on items than
buyers who pay with cash. That is why
you should establish a monthly budget
to curb your spending:
strengthen your credit by paying
large balances each month
again 25-days use of your money
that can be earning interest
earn rebate benefits such as airline
miles, auto points, etc.
Step 6:
Make a quarterly assessment.
If you find yourself spending beyond your
budget (based on the ease of credit card
use), you may need to switch
to pre-paid cards or cash to curb your
spending.
Manage Credit Card Use:
Program B: Keeping Card Debt in Control
Program
B: Managing Credit Card Debt
These steps are for card holders who
lack discipline to control credit card
use and who have incurred credit card
debt.
Step
1:
List all of your current credit cards. Note the fees that you pay each
month just having these cards. The
goal is to rid yourself of this
obligation.
Step
2
Select two cards from your list.
Select the card that offers the
best benefits:
no annual fee
25-day grace period
low interest
VISA, MasterCard
single-cycle billing
If none of your current credit
cards fit these benefits, find
a credit card that does:
Take a pair of scissors and cut
all of your cards in half (except
for the two cards you selected).
Store the pieces in a jar as a
reminder of your credit management
program. Tuck
the two remaining cards away for
emergency use only.
Step
4:
Enroll into a pre-paid credit
card program. Pre-paid cards work
exactly like credit cards but
function as a cash card. You load
to the card the amount you need
and use the card like a regular
credit card to make purchases,
arrange reservations, etc.
The advantage of pre-paid's is
that you limit "instant gratification"
since the amount you spend is
set by the amount you budget and
load to the card.
You
will now use your pre-paid card for your everyday expenses. If
you don't have enough cash loaded
to the card, adjust your monthly
budget accordingly.
Step
7:
As you pay off each credit card
balance that is remaining on the credit cards that you ripped up, call the creditor and
request that they close your account.
Note: it is important that you
close your account to remove the
credit card from your credit report.
Throw away any new credit card
offers that come in the mail.
Hang up on telesales representatives
hawking credit cards programs.
Refuse to enter into any financing
agreement with a furniture or
home improvement retailer.
Step
8:
After about 12-18 months using
PRE-PAID CREDIT ONLY, you can
now jump to Program
A above for maximizing your
credit card benefits.