Managing Credit Wisely

Quick Tips for Managing Credit

Here are a few important steps to help consumers use and manage their credit wisely. 

1. Pay on time.

   Paying your credit card account on time helps you avoid late fees, which can pile up. In addition, it enables you to maintain a good credit history. Ultimately, a good credit history can qualify you for lower rates in the future. If your bill is due at an inconvenient time of the month — for example, if it's due on the 10th and you get paid on the 15th — ask your credit card issuer to change your billing cycle to fit your cash flow. It can be as easy as a phone call.

2. Stay below your credit limit.

   Every credit card has a limit of how much money you can charge. Going over this amount will accrue a fee and increase your interest rate. To avoid this, keep a record of your spending, and check your balance online or over the phone. Remember that some merchants, such as hotel and car rental companies, put a "hold" on your credit card based on their estimate of the amount you will charge. This can reduce your available credit until the final charge is processed.

3. Understand account fees.

   Credit card issuers charge fees for cash advances, transferring balances and having a payment returned. Some issuers charge a fee when you pay your bill by phone — find out the rules of your account. If you need a cash advance, withdraw enough money so that you don't have to take a second cash advance and incur a second fee later in the month. Read your credit card agreement to learn more about the fees that your credit card issuer charges.

4. Pay more than the minimum amount due.

   Even if you can't pay your balance in full each month, pay as much on the account as you can. Over time, you'll pay less in interest charges and you'll pay off your balance sooner.

5. Watch for changes in the terms of your account.

   Credit card issuers are allowed to change the terms and conditions of your account. When this happens, they will send you "change in terms" notices, which often include new fees, interest rates and billing features. At this point, you can decide whether you want to change the way you use the card. For example, if cash advance fees increase, you may decide to use a different card for cash advances. If you have a card with a variable rate or if you have an introductory rate that is ending, be aware that credit card issuers are not required to send you a notice. Interest rates are listed on your monthly bill — read your bill carefully and take note of any changes.

6. Sign up for online account servicing.

   Online account services also allow you to monitor account activity on a daily or hourly basis and sign up to pay your bills automatically online. In addition, credit card issuers offer the option to receive your statement notification via email. This allows you to view your statement instantly, rather than waiting for them to arrive in the mail. Visit your credit card company Web site to learn how to sign up for online servicing.

  Information in this article was derived from the Federal Reserve Board Web site.