Simple Tips to Beat Fees and Boost Your Credit Score
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Credit cards are a fact of life, and it may seem like you're at the whim of the banks that offer them. A recent law aimed at protecting consumers also created a new layer of fees and interest rates to navigate.
And still, paying with plastic has become so routine it's almost a mindless exercise. Which is exactly what the credit card companies are counting on. Just be mindful that one swipe of your card can have a long-term effect on your credit rating.
What's the Average Person To Do?
Let's start with your credit rating. It's scored on a scale between 300 and 850, with good credit being anything over 700. Credit agencies use a number of factors to determine your score, and it affects your ability to get a mortgage or rent an apartment, the interest rate you'll pay on loans of all sorts, auto insurance premiums, and even whether an employer will hire you, in some cases.
| What Affects Your Credit Score | Tips to Improve Your Credit Score |
|---|---|
| Payment History (35%) | Pay your bills on time. Consider automatic payment to avoid missed deadlines. |
| Amount and Type of Debt (30%) | Know your credit limit and keep your balance below 50% of it. |
| Length of Credit History (15%) | It's often best to keep your oldest card open. |
| New Credit (10%) | Limit credit applications to avoid credit inquiries by lenders. |
| Types of Credit (10%) | Having a mix of account types may be smart: mortgage, installment (auto) and revolving (credit cards). |
Take Action Tips for Today
You may have noticed that your monthly statement now shows how long it would take to pay your balance if you make only minimum payments. This provision in the 2009 law has shocked many Americans into paying more than the minimum, which is good. But banks compensated by raising interest rates and some fees. Transaction fees, cash-advance fees, annual fees and inactivity fees (for simply not using your card) are more common than ever, so read the fine print.
- Study your credit report – You can get a report from each of three credit bureaus at annualcreditreport.com. It's smart to stagger those reports over 12 months. By being diligent about checking your credit report for free, you can skip monthly fees credit bureaus charge when they offer credit monitoring "protection."
- Choose your due date – Have you noticed your bill arrives sooner than it used to? The law increased the grace period to 21 days from 14. That extra time may contribute to forgotten due dates, which could lead to late payments and lower credit ratings. To help you remember, request a specific due date. Simply contact the bank to request a date that works well with your budget or bill-paying habits, or pick a day that's easy to remember.
- Avoid overdraft loopholes – You can no longer be penalized for going over your credit limit, unless you give the bank your approval to do so. Banks may call it overdraft protection, and millions of unsuspecting debit and credit card customers have opted in. Agree to it, and you're basically giving your bank permission to let you overspend and charge high fees for the privilege!
- Use your perks – If you use your credit card to acquire points and miles, be sure to use them. More than $16 billion in rewards go unused every year (Colloquy loyalty research). Whether you use a site like Award Wallet to track your points or rely on yourself to do so, treat them like money and use them wisely.
Other Resources
There's a lot more to money management than your credit rating, of course:
- Get free daily tips with practical things to do and ways to save money based on your age bracket.
- Use this nifty calculator to tally what you can save if you change one thing.
- In addition to a free workshop on "Credit and Debt," we offer other financial education workshops on a range of topics in communities across the country. Check out workshop descriptions and find an event in your area.
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