Using Credit Cards Wisely

Borrowing money is essential to building credit, but it can be intimidating because nobody likes getting into debt. If you're nervous about building your credit because of this, you're not alone, and WaFd Bank is here to help. Below are some tips for using credit cards wisely, but don't forget that our bankers at your local branch are also a resource!

Pay Back What You Borrow

This might seem obvious, but sometimes paying back what you borrowed is not all that simple or easy. When you borrow money with a credit card, the payment size and the total amount you have to pay back is determined by your interest rate and how much you borrow. If your interest rate is 24%, over a year's time you'll be paying back up to $240 on top of the original $1,000 you borrowed. There is a grace period with credit cards where you are not charged any interest, so it's a good idea to find out what those dates are (at least 21 days by law) and use that to your advantage if you can.

Use Your Card

With your interest rate in mind, only borrow what you know you can pay back in the same month, or at least in less than six. This way, you'll still be building your credit and you won't have to pay high amounts of interest. You will still need to use your card to show good payment history and contribute to your score so don't be afraid to use it for some purchases. Think about using it for things like gas or groceries and making the payment on your card when you get home. Transactions do take time to show up on your statement, but you'll know exactly what will be charged and what to pay.

Top Tips for Using Credit Cards Wisely

• Pay off your credit card in full each month to avoid paying interest (you should have a grace period before you're charged interest, your card agreement will have details on that)
• If you do carry a balance, pay more than the minimum payment to pay it off faster and to pay less in interest
• Any balance on your credit card should be 30% or less than your limit; if you want to get more credit later it doesn't look good to have your credit maxed out
• Keep in mind your credit card's interest rate, as this can help you avoid making big purchases on your card and it's always cheaper to save up and pay in cash!
• Make all payments on time to avoid late fees; any payments you make that are 30 days late or more will be reported to the credit bureau
• Understand your card agreement fully, and ask questions if you're confused about anything so you can avoid any penalties, fees, or higher interest rates
• Be careful with introductory no-interest terms, as these balances can sometimes end up costing you more than if you left the balance where it was; make sure you understand the timeframe, fees, and any changes that could occur with the interest rate
• Keep older credit cards open to help maintain your credit history and keep your credit utilization (the amount you borrow vs your limit across all your credit cards and accounts) low (if it's too much temptation to spend, close extra credit cards!)

Benefits of Having and Using a Credit Card Wisely

There are a few great benefits to having and using a credit card, but be sure you're mindful of how much you're spending and what your interest rate is. This way when you're tempted you can think of how much interest that awesome new jacket will cost you, over and above what it may or may not be on sale for. That being said, here are a few good things to know:

• Fraud protection: if you haven't had fraud on your debit card, statistically it's just a matter of time until you do. By using a credit card for big purchases or online shopping, if you do end up having card fraud your grocery money is safe. While any disputed charges are being investigated, your card might be frozen until it's resolved, but rest easy knowing your budget won't be impacted.
• Bonuses and rewards: While these are designed to make you want to spend, but if you're disciplined and stick to paying back what you borrow within the grace period, the rewards can be more than worth the annual fee, if the card charges that fee.
• Discounts and protection when traveling: Specifically, hotel rooms and car rentals can and often do charge you more if you use a debit card rather than credit, or they will put a hold on your money. Even if you've budgeted for your trip, this can get tricky if you've got bills to pay or the hold is a large amount.

WaFd Bank is Here to Help

No question is too small, and with WaFd Bank you also have access to tools and services to help you manage your finances and get the most from your money. Visit us at your neighborhood branch, give us a call at 800-324-9375, or check out our credit card options to see what could work for you.