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CREDIT CARD DOs and DONTs
You should always handle credit cards with extreme care. If you aren't careful, you can quickly end up in a lot of debt and find it difficult to get out.
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You should always handle credit cards with extreme care. If you aren't careful, you can quickly end up in a lot of debt and find it difficult to get out.
A Thread
Pay your bill on time
To avoid interest, late fees, and poor credit scores, you should always pay your bill on time. Otherwise your credit score will take a hit, which could cost you thousands of Rands in interest charges down the road. Paying your bill on time is important
To avoid interest, late fees, and poor credit scores, you should always pay your bill on time. Otherwise your credit score will take a hit, which could cost you thousands of Rands in interest charges down the road. Paying your bill on time is important
Understand the billing cycle
Each month your credit company will issue a statement with two dates: the closing date and payment date. The closing date is the last day you can make a charge for a single statement. After the closing date, any new transactions will go on next month
Each month your credit company will issue a statement with two dates: the closing date and payment date. The closing date is the last day you can make a charge for a single statement. After the closing date, any new transactions will go on next month
You might have a closing date on the 31st of each month and a payment date on the 21st. October statement would run from October 1st - October 31st with a payment due on November 21st. You have 21 days after your statement ends before you are required to make a payment.
This 21-day timeframe is a grace period where you won't be charged any interest as long as you pay in full by the due date.
Keep in mind that all credit cards are different and each one has its own billing cycle, payment date, and grace period.
Keep in mind that all credit cards are different and each one has its own billing cycle, payment date, and grace period.
Pay your bill in full
Paying your bill in full is extremely important for using a credit card wisely because it allows you to both avoid interest and build a high credit score. Credit card companies calculate interest using your average daily balance.
Paying your bill in full is extremely important for using a credit card wisely because it allows you to both avoid interest and build a high credit score. Credit card companies calculate interest using your average daily balance.
let's say you have a statement balance of R1,000 and make a payment of R500 on the due date. Most people believe they'll only be charged interest on the remaining R500, but this is not true. The grace period mentioned above only applies if you pay your balance in full.
If you have any remaining balance on the card after the grace period, the credit card company will charge you interest based on the average daily balance, and you forfeit your grace period. Any transactions you charge will begin accruing interest immediately.
Keep your balances low
In addition to making on-time payments, it's essential to keep your balance low relative to your available credit limit. There are two main benefits to maintaining a small balance:
In addition to making on-time payments, it's essential to keep your balance low relative to your available credit limit. There are two main benefits to maintaining a small balance:
Low balances help increase your credit score.
You're more likely to pay off your balance in full and on time.
A significant portion (30%) of your credit score comes from your credit utilization, which is a ratio of what you owe to what is available to you.
You're more likely to pay off your balance in full and on time.
A significant portion (30%) of your credit score comes from your credit utilization, which is a ratio of what you owe to what is available to you.
Don't view your credit card as an extension of your budget. It's highly recommended that you never charge more to a credit card than what you can currently cover in your bank account.
By only charging what you can afford, you'll ensure that you won't pay any interest and always maintain a high credit score. It's tempting to spend ahead based on what you know you'll get paid, but it's a bad practice.
How your credit score is calculated
credit score across the finance industry and is made up of five key components.
Payment History (35%)
Credit Utilization (30%)
Length of Credit History (15%)
New Credit (10%)
Credit Mix (10%)
credit score across the finance industry and is made up of five key components.
Payment History (35%)
Credit Utilization (30%)
Length of Credit History (15%)
New Credit (10%)
Credit Mix (10%)
Payment history is based on how often you pay on time and how reliable you are as a borrower. Credit utilization is the ratio between the amount you borrow (balance) and how much is available to you (credit limit).
The length of credit history is a simple score based on how long you've used credit: the longer, the better. New credit measures how often you apply for credit products or loans and what percentage of your credit is related to recently opened accounts.
Lastly, credit mix is based on how many different types of credit you use. Generally, more is better.
Before you get/use your credit account, understand how it works.
Before you get/use your credit account, understand how it works.
Using credit cards to build your score
It's important to recognize that payment history and credit utilization make up 65% of your score. The best way to build your credit score with credit cards is to maintain a low balance and never miss a payment.
It's important to recognize that payment history and credit utilization make up 65% of your score. The best way to build your credit score with credit cards is to maintain a low balance and never miss a payment.
Additional Tips
Call your credit card company and ask for a credit limit increase but don't increase your spending. This tactic will help your utilization score by decreasing your ratio.
Call your credit card company and ask for a credit limit increase but don't increase your spending. This tactic will help your utilization score by decreasing your ratio.
set a recurring bill and automatic payment to that card. Setting up this small recurring payment will help both your overall utilization and your payment history.
If you are applying for a loan soon, pay off all your credit cards a few days before each statement closes.
If you are applying for a loan soon, pay off all your credit cards a few days before each statement closes.
Paying your cards off early will decrease your overall utilization and boost your credit score for a few days.
Credit cards are dangerous when used irresponsibly, but they are powerful tools to help your finances when used wisely. To maintain a high credit score, follow the best practices mentioned above: always pay on time, always pay in full, and keep a low balance on your card.
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