Credit cards can be a powerful financial tool. One way to wisely purchase with plastic is by building a positive credit score.
“Sometimes people will get a card and put 50 or 100 dollars on it, pay it off and do that about every six months. It keeps the card active and it shows you had a balance and paid off the balance,” Michael Byers said.
Byers is a Financial Planner and said not paying balances on time puts a ding in your credit history.
“The only thing that’s going to fix that ding is time. Even if you pay off the card and get rid of it, it will still negatively affect your credit,” Byers said.
Credit card traps can be like quicksand. Byers said there are big ones to avoid.
“Always putting everything on credit, not paying off the balances on a monthly basis and not having a plan to pay those balances off,” Byers said.
Also, be aware of what credit should be used for.
“If there’s something that you need or there’s an emergency, those sorts of things if you haven’t got the savings set up, use the credit card for those emergencies.”
In addition, be aware of what it shouldn’t be used for.
“When you’re using credit for your daily living expenses, that’s a trap,” Byers said. “Also, don’t use it to raise your standard of living. What ultimately happens is you get stuck in the trap of working to pay off the credit cards and that doesn’t feel very good at all.”
Byers suggested if you are working to pay off multiple cards you should tackle one at a time, starting with paying the smallest balance in full.