As someone who loves to play the long-term credit card game, I've found ways to maximize the value of my credit cards and make life a bit easier. This can be challenging when dealing with something that most Americans find daunting. The American Bankers Association's report on Quarter 3 of 2020 found that a whopping 40.7% carry a balance and pay interest on their debt. If you haven’t already, I would recommend checking out our other blog posts on credit cards that will teach you the basics.
In this blog post, I list out 4 simple tips that have helped me personally throughout my journey with credit cards.
1. Change all billing cycles for credit cards to a specific day of the month.
This little trick can help consolidate all bills to the same time frame, so you don't have to remember all the different days of the months that the billing cycles begin and end. It also helps to be able to view all your bills at one time. This makes it easier to know how much is taken out of your bank account every month to pay debt and then to see how much you have left to save or invest.
2. Place limits on spending and cash advances.
There’s typically a strong correlation between your credit card utilization rate and your credit score. Experts generally recommend keeping the ratio between your balances and credit limits below 30%. For example, if you have a total credit limit across your accounts of $10,000, you’d need to keep your total balance below $3,000 to keep your credit utilization rate below 30%. You can ask your credit card issuer to set caps on the amounts of purchases and cash advances that are allowed on your card so you can keep your credit utilization rate at a level you are comfortable with. I highly suggest you set your cash advance limit to $0 to avoid higher fees and interest rates compared to using the credit card on regular purchases.
3. Midcycle payments could boost your credit.
Every month your credit card issuer reports your account information to the three major credit bureaus: Equifax, Experian, and TransUnion. One key data point that gets reported is your balance, which is used to calculate your credit utilization ratio. That ratio is the percentage of your available credit that you're currently using.
As we previously mentioned in Alex's blog post 5 Factors That Influence Your Credit Score, credit utilization or revolving utilization is a major factor in your credit score. It's an element of "amounts owed," which accounts for 30% of your FICO score. In general, you want to keep utilization under 30%, but the lower, the better.
One thing to keep in mind: Your card issuer doesn't necessarily report your account information after you make your monthly payment. It could be reported at any point in your billing cycle. Depending on when that is, and how much you charge each month, the utilization that gets reflected in your credit scores could be relatively high or low.
One potential solution: Don't wait until your due date to pay your bill. Make a habit of going online in the middle of the billing cycle and paying down your balance. This will help make your credit utilization percentage lower when your credit card company sends your information to the credit bureaus.
4. Label credit cards to maximize cash back, miles, and points.
If you are someone like myself who carries around 5-6 credit cards at a time, it can get confusing on deciding which card to use to maximize either cash back, miles, or points when checking out. I recommend investing in a label maker and labeling your cards with which category or specific uses the card is best suited for. By doing so, you take less time digging through your wallet or purse, less time thinking about which card to use, and more time enjoying your credit card rewards.
We hope these 4 simple credit card tips help improve your relationship with credit. To discuss further or review other parts of your financial plan, schedule a meeting with a member of our team using the link below.
Best,
Brandon