When I was younger, I remember all the credit card offers I received—and all the gifts, mugs, coupons, cash certificates, and airline tickets that came with them. These items were really hard to resist, so I didn't. The next thing I knew, I had 10 cards, even though I didn't have a full-time job.
As you could probably guess, my credit score suffered because of it. And I'm sure I'm not the only one who fell into that trap.
Your Credit Score Matters
You have all heard that your credit score is important for your future. That's because your score is like a report card for your spending. A good "grade" can equal good things, like low interest rates on car loans, less expensive car insurance, and a better chance of getting that apartment you want. A bad grade? Well, that could make it tough for you to even qualify for such purchases.
Yet, despite this, people are not always aware about their credit scores and how they use credit. Consider this: The average credit card debt in the United States is $15,762, and 34% of Americans carry a balance from month to month. And with potentially soaring interest rates, some people may pay twice as much as they spent by the end of 1 year!
Just imagine how you'd feel making payments on a sweater you bought for a boyfriend or girlfriend that you broke up with months ago. Not great, right?
Think Before You Spend
To help you and make your credit stronger, follow these four tips:
1. Make A List And Check Your Credit Limits.
Think about what you need to buy, what some good options might be, and how much you are willing to spend. Then, write it down or enter it into a list app. Allow yourself some flexibility, but realize that if you overspend on someone or something, you'll need to cut back on something else in the future. Keep your spending to 30% of your credit limit.
2. Use Cash Or A Credit Card To Pay In Full.
Cash is finite. It is tangible. It hurts a little to hand it over. These are all reasons why people tend to spend less when shopping with cash than with plastic. If you use a credit card, do your best to always pay in full.
3. Keep Tabs On Your Purchases And credit report.
Keep up-to-date records to avoid nasty overdraft penalties. Movies, parties, and shopping can add up quickly, and that cushion you're used to can disappear before you realize it. Overdrawing your account by even a few dollars can result in penalties of up to $35—for every transaction. Don't let your hard-earned money go toward the billions that banks collect each year in overdraft fees. Always check your purchases to avoid identity theft.
4. Make Payments On Time.
Be sure to make at least the minimum payments on time. Your credit score is based almost entirely on your ability to pay back debt, and late or missed payments will have an adverse effect. For more information on what goes into a credit score, check out this article.
A Bad Reputation
Similar to your reputation, you can ruin your credit overnight with a simple mistake. So, you can either spend your future sending payments to credit card companies, or you can tame those credit cards and begin paying yourself each month instead.
A well-crafted budget will help you keep your credit under control and thus your credit score high saving you money. You choose.