Here’s what you’re probably getting wrong about credit cards.
Transcript:
Conway Gittens: What are some of the most common mistakes that people make when managing their credit card debt?
Ted Rossman: One big mistake is some people erroneously think that you need to carry a balance to build credit. That is definitely false.
The best way to use a credit card is to pay in full each and every month. That’s when rewards are worth it. That’s when you’re avoiding interest. That’s really tip number one with a credit card. Use it like a debit card.
Credit cards have better rewards and better buyer protections. The one big drawback is debt. So you have to know yourself, too. I mean, if you have credit card debt or you think you’re going to overspend, maybe stick to cash or debit, get that 0% balance transfer card to pay down your debt. So there are a lot of misconceptions about debt and whether or not to carry a balance.
But some people avoid credit to their detriment. You know, sometimes I hear from younger adults, including one of my younger brothers, who they’re kind of scared of credit and they don’t want to use it. That can come back to hurt you at some point because then you’re not building credit. So then when you want to buy a car or rent an apartment or buy a house, you may not have a credit score.
That’s been a pain point among a lot of young adults is that as it’s become harder to get a credit card and as some have kind of self-selected out of credit cards, it’s important to build credit. I wish buy now, pay later plans reported to credit bureaus more. Most of them do not. A lot of young adults are not building credit, so it’s important to use it, but use it responsibly.
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