How To Use Credit Responsibly

One of the most crucial items to understand about credit is that you have to have credit to earn credit. Now, that may sound confusing but we’ll clear it up for you. Before a bank will be willing to offer you credit or loans, you need to prove to them that you can pay them back in full. That’s where credit comes into play. Still confused? Read on to learn more about credit and how to use it responsibly.

Opening a Line of Credit

In “How to Build Credit from Scratch” we talk about how credit is one of the most important aspects of a person’s financial responsibility. You can speak with our bankers or almost anyone to sign up for a credit card. With that said, be cautious when opening a line of credit. As easy as it is to fall into debt, it’s also easy to take full advantage of borrowing money if you do it correctly.

Keeping Track of Your Credit Score

After opening a line of credit, the first step to using it responsibly is to keep track of your credit score. Central Federal keeps track of credit scores and we notify our customers of their scores and history when applying for new credit. Try utilizing the big three credit bureaus annually as well – Equifax, Experian, and TransUnion. Credit Karma is another effective option. Moving forward, a lot of lenders will need to know your score. It’s important to pay off credit cards in full before the monthly statement cycle. This is the best strategy to get better results rather than racking up balances and then paying them down long term. Scores range from 300 to over 800.

Managing Credit Cards

Next, you need to learn how to properly manage credit. Let’s take your current credit cards. How many do you have and what do you use each for? Ideally, you’re only using credit on something you can ultimately afford to pay off. Use your card on gasoline purchases or grocery shopping to build credit early. Open store credit for places you frequently make purchases at instead of a place with a one-time deal. You may find yourself making more expensive purchases that you wouldn’t make without the card.

Observe Interest Rates and Fees

If you do find yourself in need of a new credit card, make sure to check what the interest rate is and what kind of fees will apply. Having a higher interest rate is good for the creditor but bad for you. Interest will collect on late or missing payments, so that percentage will tell you how much that will be. There are also cards that have annual fees. Some may have harsher fees for late or missing payments than others.

Now that you know how to use credit responsibly, it’s time to practice! If you need more face-to-face interaction to better understand the concepts listed above, please do not hesitate to visit Central Federal. Our bankers are friendly and experienced. You can also give us a call at (573) 364-1024.