Maybe it’s because I work at a lending institution for my day job, or maybe I exude some kind of Personal Finance Nerd Eau de toilette.
Whatever it is, my friends seem to flock to me when they have questions or need advice.
In the last couple of months, I have numerous friends come to me with questions regarding their credit scores, credit card usage, and more. The conversations have always ended with both of us learning something and being more comfortable talking about personal finances and money, which is good because it should not be a taboo topic. Of course, I try to never pry into my friends’ financial lives, instead I try to only answer the questions they ask of me and not take advantage of their willingness to give out financial information during our discussions.
What has shocked me though is how little some of these people know about credit cards and credit scores, especially when you consider that they have been using credit for several years, more than a decade in some cases.
Therefore, I thought I’d share a couple of the common questions I’ve gotten so you can learn more about your credit score and not have to ask your friends over dinner. 🙂
One of my friends recently explained that she received a large credit limit increase on one of her credit cards. She is a pretty hardcore Dave Ramsey fan and therefore hardly uses her credit card (only for online purchases and travel) and felt that her new, higher, credit limit was excessive.
After some discussion we talked about if she could or should call to have her limit reduced to a more reasonable level. I reminded her that she need to make sure that the reduced limit she selected was high enough that she wouldn’t have to ask for an increase again in the future. Additionally, asking for a lower credit limit could affect her credit utilization ratio which might lower her credit score too.
Another friend had just gotten her first credit card and was unsure if she had to make at least one new purchase on it each month to “keep it active” and “build her credit” and payment history. While there are definite benefits to using your credit card on a regular basis, within a reasonable amount that you can afford, you do not have to use your credit card to build a history. Another friend opened his first credit card, never used it, and got a credit limit and credit score increase quite quickly anyway.
Even if you don’t use your credit card often you will still have a credit account open on your record and you will be building length of history, which is also a factor considered in your overall credit score.
I am no personal finance expert, but I do try to help my friends and family with some of these questions when they have them. These are all basics of owning and using a credit card that you should know before opening your first credit card account so you can make sure you use credit wisely to benefit your personal finances.