Financial literacy is essential for creating financial stability, diverse income streams, and generational wealth for you and your family. So many of us fail in creating secure financial futures because we’re either misinformed or not cognizant that the money system isn’t just a rich person’s game. Wealth building can start now, in whichever income bracket you find yourself.
This is going to be a short series on my blog. I hope these posts serve to financially empower some of you.
Money Rules for Credit Cards
Rule 1 – Buy with your credit card and pay the card in full at the end of the week or month.
If you’re going to buy something, use your credit card. Lenders and banks will notice the activity in your account which reflects positively on your credit score. Paying your balances off immediately does two things: it allows you to earn cash back without having to pay interests and it shows that you’re financially accountable. Don’t throw your money away by letting your account balance marinate at an 11% interest rate. Stop allowing companies to charge you interests! It’s a total waste.
I’ve been doing this for years. Not only do I make money through cash back, but my credit score reflects my accountability. By the way, I’m not a huge spender. I’ve built an excellent credit score by spending modest amounts on my credit cards and paying my balance in full each month.
Rule 2: Don’t spend more money than you have.
So you begin using your credit card for everyday purchases. You buy your coffee, your gas, and groceries with your credit card. You pay your bills with your credit card. This is great for you because not only can you earn cash back through many of these purchases, but lenders notice this activity and you become someone they trust with their money. But, you also never spend beyond your means and you’re paying your balances off in full each month.
Try to spend only as much as you can immediately pay back. If you have to get into debt, refer to Rule #3. Getting into credit card debt should only happen if it is an absolute necessity. Do not get yourself stuck in a cycle of making minimum payments–its depletes your income and your credit.
Want to go on vacation? Think ahead about how much you will spend. Do not spend beyond your means. Will the trip deplete your checking/savings account? What’re you going to do about your financial obligations when you return from your trip to France? Don’t go on vacation if you’re going to be left scrambling for money when the bills come around the following month. Be smart about your money.
Rule 3 – Use your credit cards but don’t spend more than 30% of your credit limit.
If you owe more than 30% of your available credit, your credit score can drop by a few points. Thirty percent of your credit score is determined by how much you owe relative to your credit limits. This is called the credit utilization ratio.
If you have 3 credit cards, each with a $1000 credit limit, and you owe $300 on each of your 3 credit cards, your credit utilization ratio will be 30%. An easy way to calculate your credit utilization ratio is to add up everything you owe on your credit cards and divide that by the sum of all the credit limits you have on your credit cards, then multiply that number by 100. If that number is greater than 30% for any one month, your credit score will drop.
Rule 4 – Pay everything on time.
Many people forget about their obligation to pay back what they’ve borrowed. Never miss a payment. If for some reason you missed a payment, call your credit card company, tell them it was a one time mistake, and ask them to remove the fee. This only works if you are a reliable customer. One or two mistakes could happen, but if you make it a habit, lenders will not trust you and they won’t want to help you.
Rule 5 – Call your credit card companies and ask them to lower your interest rate and increase your credit limit.
I started doing this two years ago after I’d saved up money to make a large purchase. I called one of my credit card companies and asked them to increase my credit limit. Not only did the customer service representative triple my credit limit but she decreased my interest rate by three percentage points in the process. I made the purchase using my credit card and paid it online, in full the following week.
Financial literacy is not difficult. It’s the jargon of the system that makes it seem that way. If you read anything in this post that sounded confusing, please let me know in the comments and I’ll try to explain it better. Thanks for reading!