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10 Smart Credit Card Moves

April 27, 2010

By Barbara Marquand | Money Rates Columnist

Credit cards are like any other tool; they require skill to use effectively. Follow these 10 strategies for using credit cards to craft a solid financial foundation.

1. Shop for best credit card rates.

Now that you can compare credit card offers online, it's never been easier to shop for the best credit card rates. Apply for credit cards that offer no or low annual fees, the best reward options, and the lowest interest rates if you plan to carry a balance.

2. Understand credit card terms.

Read the fine print of a credit card agreement so you know the terms before you use the card. How much will you pay for transferring a balance? How much is the interest rate on cash advances versus purchases? What is the credit limit?

3. Keep credit card balances low.

Protect your credit score by keeping balances to 30% or less of your credit limits. Maxed-out credit cards are red flags to potential lenders, indicating you have trouble managing your money.

4. Keep credit card spending within your monthly budget.

It's easy to rack up a big credit card bill if you're not careful. Avoid mindless impulse purchases by planning your spending, writing down everything you charge, and leaving credit cards at home unless you need them to make budgeted purchases.

5. Monitor your credit card account online.

Don't wait until your credit card bill arrives to see how much you spent. Sign up to check your credit card account online at any time. Not only will online monitoring help you stick to your budget, but it will also enable you to spot any unauthorized purchases and report them to your credit card issuer quickly.

6. Pay your bills on time.

Avoid late payment fees and build a solid credit score by paying your bills on time. Late payments will ding your credit rating and, if they are more than 60 days overdue, will subject you to higher interest rates.

7. Pay more than the minimum due.

Aim to pay off as much of your balance each month as you can to avoid costly interest. Adding just $10 or $20 to the minimum due will make a significant difference in how fast you pay off your bill.

8. Maintain a reasonable number of credit cards.

There's no hard and fast rule for the number of credit cards you should have, but few consumers need more than two or three. Having too many cards makes tracking expenses difficult and can lead to overspending.

9. Don't rack up unnecessary fees and interest.

Avoid getting cash advances or using "convenience checks," which both come with fees and typically carry higher interest rates than the interest rate for purchases.

10. Sign up for free transaction alert services.

Credit card companies often offer free cell phone text and email transaction alerts to let you know when there's unusual activity on your account. You can sign up for alerts that notify you when you're approaching your credit limit or when a transaction exceeds a certain dollar figure. These alerts help keep you on top of your spending and can help you detect credit card fraud early.

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