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Tuesday Tip – Credit Cards and Credit Scores

Every time you turn around you’re hearing about “your credit score” and what a poor credit score can do to you. Besides making it difficult to get a mortgage if you’re interested in buying a home, it can also raise rates on things like car insurance so it’s important to try and take steps to improve your credit score.

There’s a detailed article on credit scores at today’s Yahoo Finance, but I think we can all appreciate the basics:

  • 1. Pay cash for items.
  • 2. Do not keep a running balance on your credit card.
  • 3. If you have a running balance, pay it on time.
  • 4. Pay your other bills on time as well.

One interesting tidbit from the Yahoo Finance article was that companies calculating your credit score looked at the balance on your card whether or not you paid it off on time in order to calculate your score. Bothersome for me because I use my credit cards as a way to keep track of all my monthly expenses by charging them and also, to earn points through the various reward programs.

As for that running balance, I know that sometimes it’s hard for people to entirely pay off what they’ve charged at the end of the month. In cases of financial hardship where the credit cards are providing the cash to keep a household afloat that’s understandable. But if it’s more a case of want instead of need, think about this for a moment.

Revolving credit card rates range from anywhere to 7% (rare) to the 20something% range (some are even close to 30%). If you had $5,000 in revolving credit, you could be spending a couple of thousand dollars a year just for paying the interest on your credit card. You can do some comparisons of what you would save at MSN Money.

What about those reward programs? They sound so wonderful to begin with and sometimes they can be. Smart Money reviewed some of the more common credit card reward programs You can also click here for the MSN Money round up of rewards.

There’s just one thing to remember when it comes to the rewards: If you’ve got a running balance, the interest rate you’re paying may eat up any kind of reward you’re earning.

Hope this helped you on today’s Tuesday Tip!