In theory, managing a credit card is simple: don’t go over your limit, pay your bill on time and don’t try to juggle too many cards at once. Pretty straightforward, right?
But in reality, there are a sea of credit nuances most people don’t bother with – and they should. The little details governing the credit game can lead to huge consequences if ignored, and gaining a better understanding of the rules is the best way to get ahead.
So what questions should you be asking? Read ahead to find out.
1. What Rewards Card Is Best – for Me?
Credit expert Lee Huff of BaldThoughts.com said that many people apply for and use rewards cards based on the miles and points they see advertised. But instead of getting distracted by the numbers, people need to consider what card is actually best for them.
Do you research before signing up for a rewards card so you don’t end up getting a card that’s best for domestic travel when you’re hoping to score a free flight to Europe.
Huff also said to do the math before signing up for a card with an annual fee. Oftentimes, it’s worth the expense, he said, if you’re getting a free $200 hotel night in exchange for an $100 annual fee.
2. I pay in full every month, does this hurt my credit or help it?
Many people believe that if they pay their credit card in full every month, the amount is not reported to the major credit bureaus and does not help them build a credit score. They think that you have to carry some debt in order to maintain a good credit score.
But not necessarily. This idea often gets confused with people who pay their credit card balance before the billing cycle is finished, therefore not allowing the credit card company to report any kind of balance.
For example, if you make purchases of $500 on your credit card and pay that off immediately, the credit card company does not have anything to charge you at the end of the month. Instead, wait until the billing cycle is finished to get your bill and pay it in full.
3. What kind of credit limit do I need?
In this case, bigger really is better. If you have a small credit limit, you’re more likely to spend up to the limit every month. This will affect your credit utilization percentage, which counts how much of your credit limit you’re using. This percentage is used to partially determine your credit score – a percentage of 30% or higher will negatively affect your score.
In this case, a high credit limit doesn’t matter if you are still spending close to the limit. But generally, the bigger your credit limit, the less likely you are to hit that 30%.
4. How many credit cards should I have?
Too many cards doesn’t necessarily hurt your credit score, but not having a sufficient variety of credit or having too many recent cards can affect your credit score. Your credit score is also affected by the average age of each account. The more credit cards you have, the harder it is to have a long credit history.
Opening up a new card might not affect your score too much, but having five new cards opened in the last six months. You want to be seen as a responsible credit card user, not someone who opens new cards constantly.
5. What do credit cards hide in the legal?
The dirty details about credit cards can be astonishing. Your card issuer can change your APR when they feel like it, meaning your card’s interest rate can skyrocket without you realizing it. Many lenders also charge you two fees when you have a late payment – interest on the amount you owe and a separate late fee. Some also change your APR if you have a late payment on a different card or loan.
Bottom line: make sure to read through the fine print carefully so you know how to avoid getting caught.
6. When should I transfer a balance for 0%?
Doing a balance transfer is helpful for those trying to pay off credit card debt, but drowning in the high-interest rates. A balance transfer to a zero percent interest card could save you hundreds, but only if you use that opportunity to pay the debt off.
Ask yourself: is the zero percent interest window being offered enough time to pay it off? Also, in case you continue carrying a balance at the end of that period, take into account the interest rate that will kick in. Use a loan calculator to see if the numbers add up in your favor?
Many balance transfers come with extra fees, which are only worth it if you take advantage of the interest rate offer. Some also cancel the 0% interest if you miss a payment or are late – so be diligent about paying those off on time.
Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.