Now I’m not the biggest fan of credit cards you’ll ever meet, but I will admit they can be useful from time-to-time. They’re certainly handy when you’re faced with a large unexpected expense. And they’re always good for a confidence/ego boost – it’s always nice to know you can spend a bunch of money if you need or want to. But other than that, I see them as pretty much a financial accident waiting to happen.
You see I’m really a prepaid debit cards kind of guy. I see reloadable debit cards as safe and sane tools for everyday spending. They give you the same spending options as credit cards but they help you control that spending and stay on budget. However one thing debit cards can’t do very well is help you build up your credit score. Credit cards have the edge there. So how can you use your credit cards to build up your credit and still avoid the traps bad credit card usage can lead you into? The answer is with a careful bill paying plan.
What you can do is set up your credit card to automatically pay your regular expenses each month. These are the bills you see every month like your phone bill, your electricity bill, etc. Then you set up an automatic payment from your bank each month to pay your credit card bill. In this way you will strengthen your credit by making both regular charges and regular payments each and every month.
Now remember when I called this a “careful” bill paying plan? I used that word because you have to be watchful and diligent to make this work. In the first place, you have to be able to set up each monthly payment to each creditor in such a way that you retain full control. You must be able to “turn off” the payment any time you want to. If you can’t, it’s a deal-breaker. You cannot relinquish control of your card to a creditor under any circumstances. If you did then they would have the power to charge you for something you didn’t want or for something that you disputed. Then you would have a tough time getting your money back and a tougher time stopping the payments when you wanted to.
The second thing to be careful with is the actual payment amounts. You must monitor the payment amounts you’re making and especially the automatic payment from your bank to your credit card. How much you’re paying and the timing on those payments is vital to track. And ideally you want to pay off the total of all the individual payments you made to creditors each month plus a little more in order to pay down your credit card balance. That way you’ll be reducing your debt as well. You have to watch this closely so an unexpected creditor expense doesn’t knock you (and your budget) for a loop.
It’s probably best to start out slowly with a plan like this. Choose one bill and start paying it and your credit card in this manner. Once you’ve got the hang of that, move on to a second bill, and so on. Don’t try to get too clever and don’t try to go too fast. Patience will rule the day. If you can do this over time (we’re talking months here), your credit score will improve. Oh, and don’t forget, get in the habit of using prepaid debit cards for your every day purchases – it’s just a better way to go than credit cards.