The current state of the economy has put Americans in a new frame of mind – one that says it isn’t fun anymore to be in debt. Some folks are even trying to go “all cash” to get away from the danger of checking overdrafts and/or identity theft.
But, you never know when you might actually need to use credit, whether you want to or not. There are times when the car engine blows up, or the furnace goes out in 10 degree weather – and you don’t have enough savings to cover repairs or replacement.
Owning and using a credit card will help keep you in a position to access credit quickly in that kind of emergency.
First, it will give you instant access to funds up to your credit limit. That might be all you need to cover the cost of a furnace repair man or a rental car to use while yours is in the shop.
But just as importantly, wise use of your credit card will help you keep your credit scores high – so if that car is beyond repair and you need a new one, you’ll not only be able to get a car loan, you’ll pay a lower interest rate.
The way you pay bills accounts for 35% of your credit score. So using your credit and paying your bills on time helps build higher credit scores.
You do have to be careful. Use the card sparingly, and pay it off when the bill arrives. Be careful never to charge over 30% of your credit limit – less than 25% is even better. Do use the card every 2- 4 months, so that you continually demonstrate your bill paying abilities – and so that you don’t get hit with an inactivity fee.
If you have to charge a higher percentage of your limit because of an emergency, and have to carry a balance, pay it down as quickly as possible.
Another big factor in your credit report is the length of time that you’ve had and used credit. So don’t wait to get a credit card until you think you might need it. Get it now. And don’t just take the first card that is offered to you. Do some research and choose the card that has the lowest fees and interest rate.
No matter how determined you are to be debt free, don’t cancel any old cards. Keep them, and use them just often enough for them to remain active.
The first step in building and maintaining your credit is to know your scores. So get your free online credit report with scores and see where you stand. Be sure to check for errors, and get them corrected if you find them. Then read the suggestions for improving your scores.
It’s very wise to stay out of debt – but it’s vital to have credit available when you actually need it.
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