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One of the first steps to living a financially healthy life is having good credit. The national household debt now stands around $14.3 trillion. Now is the time to strategize for your personal credit development. Working with a financial planner, especially here in New Jersey, can help you get a hold of your debt and build good credit.

Of course, one of the most effective ways to build credit is by using a credit card. However, it matters how you use that credit card. One of the most common mistakes we see as fee-only fiduciary financial planners is the misuse of credit cards.

Keep these guidelines in mind to make sure your credit cards help you and your credit score.

Pay on Time and in Full 

This has to be the most important point in building good credit. It also happens to be the simplest point. It takes time to build good credit. A crucial part of that is creating a good track record with your credit card supplier. Credit history, next to actually using your available credit, is a huge factor in calculating your credit score. If you always pay fully and on time, you’ll not only establish good credit but avoid having to pay interest.

Staying on Top of Payments

As vital as it is to make on-time payments, it’s deceptively easy to let the deadlines slip by you. If you have a budget, you can always make sure that you won’t be overspending on your credit card.  That will make it easier to always pay in full.  In today’s day of technology, setting a monthly reminder to pay your bill is easier than ever. That way you’ll never be late on a payment.

Always Keep an Account Active

Your credit history also depends on how long you’ve had a card open. With that in mind, ideally, you would open a credit card as soon as possible.  Keep that card active from then on to increase your average account age. Regardless of when you actually open your first credit card, you can better your credit by keeping that account open or “active.”

Hopping between credit card suppliers could leave a mark on your credit history and potentially hurt you in the long run. Be sure to research all of your credit card options ahead of time.  That way you can pick the best option.  You can then keep that card open for as long as possible and not get dinged for jumping from card to card.

Don’t Use All Your Credit 

Credit utilization is even more impactful to your credit score than credit history. In essence, credit utilization measures how much of your available credit you actually use.

Just because you have a $10,000 credit limit, doesn’t mean you should spend $10,000. Using too much of your available credit is damaging to both your credit score and your bank account. Experts suggest not exceeding 30% of your credit limit.

Use the Right Card for You

Don’t just pick a card because it’s available to you. Picking the right card from the start makes all of these other factors easier to control. Evaluate and compare all of your options to better make an informed decision. Some cards offer specific perks that may match up with your spending habits. If you spend a lot of your income on travel, hotels or even clothes shopping, there’s a credit card that will complement your expenses. Try not to get sucked in to a credit card option just because it has exciting bells and whistles to it.  Interest rates are very important to consider.

Building good credit is simple, but sometimes not easy for a lot of folks.  These first few steps can get you most of the way there, but it takes effort.  Working with a financial planner can help make things easier for you.  If you’re in New Jersey, especially here in Monmouth County, and need a planner to speak to – we’d be happy to help you out!  Click here to schedule a meeting with one of our advisors!

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