Credit cards make it possible to buy things and pay for them over time. Used responsibly, they are a great financial tool. It can also be easy to go into debt if credit cards are not used responsibly. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act requires card issuers to clearly disclose rates and other information that makes it easier for consumers to monitor what they owe. But regulations can’t prevent people from making poor debt management decisions. Here are some tips for responsible credit card use:
Actively monitor your account
Open and review your credit card statements promptly. Look for unauthorized use, of course, but also look for announcements from the card issuer. You must be given 45 days’ notice of a change in your card’s terms, such as an interest rate increase. If you choose to “opt out” of the change, you no longer will be able to add new charges to your card, and will want time to get a replacement while you pay off the old balance.
Keep your credit score healthy
Your credit is a lot like your health. To keep it in good condition, you want to take care of it, minimize risk, watch for warning signs, and make responsible decisions. Your credit score is a number between 300 and 850 and is a measure of your trustworthiness as a borrower. The higher your score, the easier it is to get a loan and, more favorable interest rates. The most important ways to maintain and improve your credit score is by paying all your bills on time and not taking on excessive debt.
Watch your card balance-to-limit ratio
It’s ok to occasionally “max out” your credit card for important purchases, as long as you can pay it off in a few months. Over the long term, try to keep your total credit card debt to a reasonable 10% to 20% of your total credit limit. If the ratio gets much above 20%, and you can handle the payments, ask for a higher limit on your current card or get another one. Don’t add new cards too often, though, and don’t close several unneeded accounts in a short period—either move can lower your credit score!
Understand the overlimit option
The CARD Act allows you to choose what you want your card issuer to do when you try to go over your card’s credit limit. If you “opt in,” you can go over the limit for a fee. If you “opt out,” your attempt to go over the limit will be declined.
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