Get Ready, Get Set: Charge!
With the downfall of the economy over the last year, and the fear that has been instilled into many consumers’ minds as a result, the number of consumers charging on their credit cards has dramatically decreased, and understandably so.
But is abandoning your credit cards really the right decision to make?
Perhaps not.
Although there certainly are reasons why consumers should stop using their credit cards, for most consumers this may be a poor decision.
Maintaining your FICO Score
The reason is because much of our credit rating, or our FICO score, is directly related to our ability to responsibly handle credit. And the best way to demonstrate our ability to handle credit is to charge on our credit cards.
Of course, there are certainly situations where charging on our credit cards is NOT the right decision: we have outstanding debt on our credit cards that is not paid off; we recently suffered a layoff or termination from our job; we have difficulty handling credit responsibly; or we have fallen behind on other bills that need our attention.
However, for the average consumer, often the best way to keep our FICO scores up is to simply use our credit cards. There are a few catches, though.
Using your Credit Responsibly
One of the worst things we can do to maintain our FICO score is to incur a significant amount of debt on our credit cards, as this simply raises our debt to income ratio, which then lowers our FICO score.
Therefore, if you have outstanding debt, work on paying it off instead of spending.
For the rest of us, using our credit cards throughout the month and then paying the debt off is not only practical, but very smart in terms of our FICO scores.
A good rule of thumb when charging is to always remain aware of our purchases so that we aren’t caught off guard when our bill comes. Otherwise, charging can be a practical and convenient way to pay for a wide variety of things throughout the month.
As always, the key to working towards an excellent FICO score is to charge responsibly and make a point of paying off our debts in a reasonable amount of time.
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