Protecting your Credit

The holiday season often leaves us with warm memories—and sometimes a chilling reminder of overspending.

With credit card companies eager to extend your credit, it’s all too easy to rack up balances that can take months (or even years) to pay off. And with the average credit card interest rate now over 20%, according to Bankrate, carrying a balance can quickly spiral into a financial headache.

But it’s not just about avoiding high-interest charges. Understanding how credit cards and credit scores work is crucial to building and maintaining financial health. From managing your utilization rates to knowing how many cards are too many, small adjustments can make a big difference. In this blog, we’ll explore practical tips to help you use credit cards wisely, protect your credit score, and keep your finances on track.

With the average credit card interest rate over 20%, simplified, that means if you have a credit card balance of $1,000 for a year, you will owe $1,200. Add a zero if your balance is $10,000 which means you’ll owe $12,000. With such high interest rates, using credit cards and carrying balances over each month can snowball quickly and get out of control. The conservative rule is to avoid putting anything on a credit card that you can’t pay off at the end of the month when the bill arrives. Paying your credit cards off completely at the end of each month will allow you to have the convenience of a credit card, without the onerous interest rate charges.

It is helpful to understand how cards work and how credit reporting agencies score each of us. Credit Scores are made up of several factors and being aware of these can help you maintain a strong credit rating:

• Try to avoid ever approaching the maximum limit on any one card.
• Aim to keep your credit utilization below 30%. Credit Utilization is the amount of credit you have used compared with your total credit limits. As an example, if your limit on a card is $10,000, it is best to never have more than $3,000 charged to that card. Same for the total limit on all of your cards. If the limit on all cards is $20,000, you should try to keep your total charged out at $6,000 or less.
  • A utilization rate of 10% or less is even better for keeping an excellent credit rating.
• Set up payment reminders to ensure you never miss a due date, as timely payments are crucial for maintaining a good credit score. Payment history is the most important factor for your credit rating, accounting for about 35% of your score.
• How many cards are too many? There are no hard and fast rules, but having 3 – 4 cards shouldn’t present a problem as long as you follow the utilization guidelines as outlined above. Having fewer cards will make it more challenging if you are just starting out and building a credit history. Applying for too many too quickly will hurt your rating. Lenders may view new credit applications as a sign that you’re desperate for credit.
• Finally, monitor your credit report for any unusual activity, and dispute any inaccuracies promptly.

Credit cards can be powerful financial tools—but only if used responsibly. By paying off balances in full each month, keeping your credit utilization low, and maintaining an excellent payment history, you can enjoy the convenience of credit without falling into costly debt traps. Monitoring your credit report and disputing inaccuracies can further safeguard your financial reputation.

Ultimately, the key is to use credit as a convenience, not a crutch. Keeping your spending in check and focusing on building savings and investments will position you for long-term financial success. With a thoughtful approach, you can maintain a healthy credit score and keep your financial goals within reach.

This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.