Using Your Credit Cards Wisely
1. Build your credit
# Get your credit reports. The credit reporting companies are required to give you a free copy once a year. Check for accuracy, and to make sure that credit cards you closed out are not reported as open. Open lines of credit look like potential debt to careful lenders.
# Keep only a few cards. Make sure the rest are cut up, and that the companies are notified that you are not using the cards any more.
# Keep up with the payments — not just on your credit cards, but also to your utilities, car finance company, mortgage holder, and those who hold any other loans.
2. Protect yourself from fraud or defects on big purchases (with the Fair Credit Billing Act)
# When you buy something with a credit card, either in person or on-line, you can withhold payment if the item is defective or not what was advertised. You must make an effort to solve the problem with the merchant first, but if you can’t reach an agreement with him or her, you can complain to the credit card company. If they agree with you, you don’t get charged. The same is NOT true if you pay with a debit card, check or cash.
# Some credit card companies offer extended warranties on big-ticket items. If you want it, check with your company.
3. Use your card for a loan
# IF you have a low-interest card, a high credit limit, and the income to pay off the card quickly, you may find that borrowing a few thousand dollars to pay off another loan or buy a car may be cheaper than getting financing in the form of a loan. Check interest rates and “points” or other fees, and try to realistically estimate how long it will take you to pay it off.
# Sometimes it is even worth it to pull money from the card for deposit to a company-matched 401(k) or tuition plan. Again, make sure you can pay it off quickly enough that the gains aren’t eaten up by the interest you pay.
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