When you're just starting out, the convenience of paying with plastic can feel like freedom to live your American dream. However, your credit card use can make the rest of your financial life much easier if you manage it well and boost your credit score. Not only will you avoid credit card interest and fees, you'll qualify for better offers in the future and get lower interest rates on future loans, which can save you thousands of dollars in the future.
Sign up for automatic bill payments so you ensure your credit card gets paid on time every month. Your payment history counts for 35 percent of your credit score, the most of any factor, and making on-time payments every month helps boost this portion of your score.
Keep your spending to under 30 percent of your available credit card balance. Besides the actual amount of your debt, the credit scoring algorithm also looks at how much of your credit line you're using at any given time. When it gets above 30 percent, your credit score starts to fall. The amount of debt you owe, including your current credit card balance, accounts for 30 percent of your credit score.
Minimize your applications for new credit. When you have a few credit cards that do the job for you, don't keep applying for new ones. Each application results in a credit inquiry on your report, which can ding your credit score.
- Don't carry a balance on your credit card thinking it will help your credit score -- it won't. You don't have to carry a balance from month to month for your usage to count toward your credit score. In fact, all carrying a balance will do is cost you interest.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."