4 Credit Card Commandments

Whether you are in credit card debt or living credit card debt free (like me now), there are four key credit card commandments for every credit card holder at any age. It is important to eliminate your credit card debt or any debt for that matter, but taking full advantage of your credit card is important as well. Remember, the credit card is in to make a buck off of you, so you have to always bring you A game.

I used the four credit card commandments when I first embarked on my credit card debt elimination journey and fully continue to use the four commandments now that I am credit card debt free.

1. Pay off your credit card regularly.

Single most important thing to do is to pay your credit card provider regularly. Whether you are paying of off in full or only paying part of you credit card debt, make sure you pay it on time. Credit card companies can either take your credit score to the next level or ruin it for life. Ultimately, you make the choice which way your credit goes, up or down. Credit card companies only report your actions to the credit bureaus such as Equifax Canada  or Transunion.

Paying off your credit card company on time will ensure that your credit card provider does not raise your interest rate or lower your credit score, because you shamelessly forgot to pay your credit card.

In order to avoid not paying your credit card company on time, here are a few rules which I implemented for my self when I was paying off my credit card debt:

• I called up my credit card and asked that my payment date be moved to the 1st of every month. Initially it was on the 24th of every month or something. Why? It was easier to track for me.
• I automated my payments every month. I knew my minimum payment every month was roughly $70 at most, so I automated $80 on the 1st of every month towards my credit card. Use this handy calculator to calculate your monthly minimum payment on your credit card debt.
• I would make additional payments throughout every month, which were over and above my minimum payment.
• Worried you won’t have money in your account for the automatic withdraw? Not to worry! Your credit card company sends you an email a few days to remind you about the withdraw, this way you can deposit money into your account if necessary.

2. Negotiate a lower APR.

APR or annual percentage rate is the interest rate your credit card company charges you. Average credit card APR is 19.99%. It is extremely expensive to carry a monthly balance at that ridiculously high rate. Put it this way, essentially your credit card company is getting a 19.99% return by lending you money. Stock markets barely have a return rate of 7%, yet the average credit card company is charging three times that much.

So, where I am going with this is that you need to get on the horn and call your credit card provider and demand a lower APR. I did this and was able to drop my APR from 19.99% to 11.99%. Eight percentage points is a big deal and quite the saving.

How to drop your credit card APR:

1. Simply call your credit card and request that you want to drop your APR. Make sure you don’t ask; “Can you….”, but rather do a polite demand and finish with a strong sentence; “I would like you to drop my APR…..“
2. Next, your credit card provider will probably ask why you are looking to lower your APR.
3. In my case, I was pretty honest and said “I am carrying a $3,500 balance and would like to pay off my credit card debt. Furthermore, I’ve been a good customer and pay my monthly minimum on time and do not have any missed payments, so what can you do for me?“
4. The operator came back and ten minutes later, my APR was dropped 8 percentage points down to 11.99%.

3. Keep your credit cards active & forever.

Lenders love to see loyalty. This is one of the first things they look at wen you apply for new credit anywhere. The longer you’ve held your credit card(s), the more valuable you are to the potential creditor. Furthermore your loyalty shows great on your credit score as well.

If you are happy with your credit card, keep it. If you are not happy with your credit card, keep it as well. Keep your credit cards open even if you are not using them anymore. Closing a credit card can have a pretty significant negative effect on your credit score, so only close if you must.

You will have to use your credit card every few months in order to keep it active. In this case, you can setup an automatic charge on it every month and a automatic payment every month. If you have a newspaper or magazine subscription, get them to charge it on the credit card you don’t use often. Likewise, setup with your credit card provider to automatically withdraw that same amount every month. That’s the beauty of automating finances.

4. Too much credit is never a bad idea (only if you’re responsible though!)

Before I get into this tip, I’d like to say that this tip is only for the responsible credit card holders. You must carry no credit card debt either. You are probably asking your self; “This guy just got out of credit card debt and now he wants more credit?”, but this is all part of my master plan.

Getting more credit goes beyond just having thousands of dollars in available credit. Having more readily available credit has to do with your credit utilization rate. What is credit utilization rate, well here is the detention:

Credit card utilization is the never-ending relationship between the balances on your credit cards and the credit limits on all of your open credit card accounts.

Supposedly 30 percent of your overall credit score comes down to the total available credit. The lower your credit utilization rate, the more attractive you look to lenders. Credit Utilization rate is calculated as follows:

How much you owe     /   available credit       X    100   = Your Credit Utilization Rate

Here is my credit utilization rate:

$50 / $5,000 x 100 = 2%

(I have a $50 balance on my CC and my credit limit is $5,000)

There are essentially two ways to improve your credit utilization score: Don’t carry any debt on your credit cards or get more credit. There are a few ways you can get more credit: open up a new credit card or increase your credit card limit.

Since paying off my credit card, the credit card company has come forward and offered to increase my credit limit to $10,000. Will I take it? Hell yeah! I want to keep a high credit utilization rate.

Mint Life has a pretty good article that talks about the myths and detentions of credit card utilization rate. It’s a pretty worthwhile read.In conclusion I want to reiterate something: Only take on my credit if you are credit card debt free and are responsible.

Eddie