Whether you have just been issued your first credit card or are opening up a new line of credit, it is important to start off on the right foot when using this account. By developing good money managing habits, you will be able to keep your debt from getting out of hand and maintain a good credit score. Here are some ways to be smart when using credit:
Budgeting out finances
Before you set out to buy an expensive TV or treat your friends to lunch, you should sit down and create a budget. Organizing your finances will not only help you figure out how to pay for your daily expenses, but it will also assist you in using your credit card wisely.
Begin this process by creating a two-column graph. In the first column, write out all of your sources of income. Next, list all of your expenses, including bills, rent and other debts you may have. As you are writing down all of your expenses, choose one that you will pay for with your credit card. You can probably rule out paying rent with your card, because this could sink you pretty far into debt. Instead, use your card to pay for small expenses such as gas for your car or lunch once a week.
Keeping a low credit utilization rate
Along with keeping on top of your spending habits, you should start paying off these accounts. This will help you keep your balance down and lower your credit utilization ratio, which is the percentage of how much of a balance you have compared to your overall limit. For instance, if you have a limit of $2,500 and have a balance of $500, your ratio would be 20 percent. This percentage is important because it will not only help improve your credit score, but show lenders how responsible you are with your debt.
Don't switch jobs when applying
There are plenty of ways to be a smart credit user, but you also want to make reasonable life decisions as well. If you are planning on opening up a new card or applying for any type of loan, you shouldn't be between jobs, because lenders may see this as a sign that you are financially insecure and may deny your application.