This article explains the importance of establishing goodcredit, and how to use your credit card as a powerful tool forultimate financial leverage. It also reveals exactly what tolook for on a credit card application, and how to calculate thatelusive "monthly finance charge".
Using a credit card wisely is an important step in building agreat credit rating. If you're trying to re-build your credit orif you're young and just starting out, pay close attention thenext time you receive a new card offer in the mail or online.When you're trying to build a positive credit history foryourself, using the right credit card makes sense. Making smallpurchases and then making your payments on time each month is asimple, reliable way to build an outstanding credit report.
WHAT TO LOOK FOR ON A CREDIT CARD APPLICATION
If you receive a credit card application that appears to offer alow monthly interest rate, don't make a decision until you turnit over and closely examine the Disclosure Box. In it you'llfind a more important measure of credit terms - the AnnualPercentage Rate, or APR. By federal law, the Disclosure Box willalso tell you whether or not the card has what is called a graceperiod - a number of days, usually 25, until your purchasestarts to accrue finance charges. If a card has a reasonablegrace period and you pay off your balance at the end of eachbilling cycle, you won't have to pay finance charges. It isn'tdifficult to find credit cards that offer these grace periods,so if the Disclosure Box doesn't declare one then throw theapplication in the trash and look for a better offer.
If you don't have any credit history at all, a credit cardcompany won't want to give you a very high credit limit, butthat's probably best when you're just starting out. You don'twant to be tempted to go into serious debt with your very firstcredit card.
HOW TO CALCULATE YOUR MONTHLY FINANCE CHARGES
Ideally you want to pay off your balance each month to avoidpaying any finance charges, but when that isn't possible it'simportant to know the actual cost of the items you purchase. Theannual percentage rate, divided by 12 months, gives you theperiodic rate that will be applied to your outstanding balanceeach month. You can estimate what your monthly finance chargewill be by multiplying the periodic rate times the outstandingbalance. It may sound complicated at first, but taking the timeto learn this simple equation can make a big difference in howyou use your credit card.
When you're able to see how much you actually spend on an itemthat you don't pay off at the end of the month, it might helpyou to resist the temptation to over-use your card. An item thatyou want to buy might be on sale at the time you purchase it,but if you don't pay off your balance at the end of the monththen those finance charges can dramatically increase the actualamount you'll end up paying.
USE YOUR CREDIT CARD AS THE STRONG FINANCIAL TOOL
Credit cards are only one of the tools available to help youbuild a positive credit history. Making on-time payments forother forms of credit, such as rent and utilities, are alsoimportant. Depending on your situation, within 1-2 years yourcredit rating will be improved enough that you no longer need touse your card for new purchases to maintain your good credit.Use these tools wisely, and they'll help build your financialfuture like no other
Using a credit card wisely is an important step in building agreat credit rating. If you're trying to re-build your credit orif you're young and just starting out, pay close attention thenext time you receive a new card offer in the mail or online.When you're trying to build a positive credit history foryourself, using the right credit card makes sense. Making smallpurchases and then making your payments on time each month is asimple, reliable way to build an outstanding credit report.
WHAT TO LOOK FOR ON A CREDIT CARD APPLICATION
If you receive a credit card application that appears to offer alow monthly interest rate, don't make a decision until you turnit over and closely examine the Disclosure Box. In it you'llfind a more important measure of credit terms - the AnnualPercentage Rate, or APR. By federal law, the Disclosure Box willalso tell you whether or not the card has what is called a graceperiod - a number of days, usually 25, until your purchasestarts to accrue finance charges. If a card has a reasonablegrace period and you pay off your balance at the end of eachbilling cycle, you won't have to pay finance charges. It isn'tdifficult to find credit cards that offer these grace periods,so if the Disclosure Box doesn't declare one then throw theapplication in the trash and look for a better offer.
If you don't have any credit history at all, a credit cardcompany won't want to give you a very high credit limit, butthat's probably best when you're just starting out. You don'twant to be tempted to go into serious debt with your very firstcredit card.
HOW TO CALCULATE YOUR MONTHLY FINANCE CHARGES
Ideally you want to pay off your balance each month to avoidpaying any finance charges, but when that isn't possible it'simportant to know the actual cost of the items you purchase. Theannual percentage rate, divided by 12 months, gives you theperiodic rate that will be applied to your outstanding balanceeach month. You can estimate what your monthly finance chargewill be by multiplying the periodic rate times the outstandingbalance. It may sound complicated at first, but taking the timeto learn this simple equation can make a big difference in howyou use your credit card.
When you're able to see how much you actually spend on an itemthat you don't pay off at the end of the month, it might helpyou to resist the temptation to over-use your card. An item thatyou want to buy might be on sale at the time you purchase it,but if you don't pay off your balance at the end of the monththen those finance charges can dramatically increase the actualamount you'll end up paying.
USE YOUR CREDIT CARD AS THE STRONG FINANCIAL TOOL
Credit cards are only one of the tools available to help youbuild a positive credit history. Making on-time payments forother forms of credit, such as rent and utilities, are alsoimportant. Depending on your situation, within 1-2 years yourcredit rating will be improved enough that you no longer need touse your card for new purchases to maintain your good credit.Use these tools wisely, and they'll help build your financialfuture like no other