Educate Yourself - Under the Oak

Home

Past Questions

Main

Question: With the new credit card rules, should I even still use a credit card?

A BuyandHolder

Answer:

Dear Buyandholder,

This week in our series on the new credit card rulings, we are addressing the interesting conundrum of why you should actually use your credit card!

As you know from our previous columns, click HERE to read, as of February 22nd, with rare exceptions, card issuers can no longer increase interest rates on your outstanding credit card balance.

So, obviously issuers are going to come up with ways to make up for their anticipated loss of revenue. One way, already in position, is to drop cardholders who do not use their cards on a regular basis. In fact, cards that are inactive for several months are very vulnerable to being shuttered. You can expect this to become an even tougher rule than it was in the past.

Inactive cards can also hurt your credit score.

So, if you have a card which you rarely take out of your wallet, in order to avoid having your account unceremoniously closed or lowering you credit score, use it now and then. And, pay off the entire balance each month -- this will help raise your credit score.

Five Key Tips

(1) Don’t carry a balance. Any balance, but especially a large balance, damages your credit score. Think like a lender – they want to know that you have credit available and that you can handle it. In other words, do not charge more than you can pay each month.

(2) Charge no more than 20% of your available credit limit each month. For example, if your card has a $1,000 limit, keep your monthly charges under $200.

(3) If you have a cash-back card or a rewards card with this option, use the cash to pay bills on time each month.

(4) To search for no-annual-fee cards and low-interest cards, go to:

www.LowCards.com
www.bankrate.com
www.CardRatings.com

(5) Finally, if you belong to a credit union, find out if it offers a credit card. Almost universally they have lower annual fees, lower interest rates and lower penalty fees than those issued by the banks.

For additional information and updates, continually check with the Federal Reserve at: www.federalreserve.gov.

Good luck!

The BUYandHOLD website contains links to third-party websites on the Internet. BUYandHOLD provides these links to these websites only as a convenience to users of the website. Links on the BUYandHOLD website are not endorsements by BUYandHOLD or Freedom Investments, implied or express, of the linked sites or any products, services or links in such sites; and no information in such sites has been endorsed or approved by BUYandHOLD. Linked sites are not under the control of BUYandHOLD or Freedom Investments, and we are not responsible for the contents of any linked site or any link contained in a linked site. No information contained in the BUYandHOLD website or accessed through any linked site, or any link contained in a linked site, constitutes a recommendation by BUYandHOLD or Freedom Investments to buy, sell or hold any security, financial product or instrument. Information accessed through linked sites is not, nor should be construed as, an offer or a solicitation of an offer, to buy or sell securities by BUYandHOLD or Freedom Investments. BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy, and any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.