Charge Away, But TIMELY Pay – The Smart Way to Improve Your Credit Rating
As a Registered Investment Advisor and a CPA, you may think I’m crazy to advise you to charge as much as you can on your credit card. Yes, you read this correctly – if you use your credit card wisely, you can improve your credit rating this way. Charge everything you can on your credit card! Charge for all your meals, consumer appliances, autos (to the extent an auto dealer will let you charge for your down payment on a car), travel, or for virtually everything and anything else you can. The benefits of charging far outweigh the benefits of paying by cash.
Use Your Credit Card Wisely
For example, if you use your credit card wisely, most credit cards give you additional extended warranty benefits, provide excellent year-end documentation of your expenses (comes in handy during tax time), give you rewards according to the card’s reward program (cash back rewards are the best by the way), give you the opportunity to dispute charges for dissatisfaction of service or goods (have you ever had success getting your money back when you paid by cash?), and help improve your credit rating.
Also, the more your charge and the more times you pay timely, the more credit you will be awarded. However, this is key – all these benefits only make sense if you have the discipline to use your card wisely and pay off your credit card balances each month. Therefore, my credit card related slogan, if you will, is: charge away, but timely pay. You should never, ever carry a balance (well, almost never). Most credit cards charge a very expensive interest rate and an even more expensive late fee if you fail to pay off the full balance monthly. This interest is considered to be consumer interest, which is not even tax deductible. It’s just wasted money.
The only time it may make sense to carry a small balance, for 60 days or so, is if you are trying to improve your credit rating or beacon score (a scoring system the credit reporting agencies use to grade your credit worthiness). Carrying a small balance and then paying it off a month or two later with some interest will actually improve your credit rating or beacon score because this information is reported to the credit bureaus monthly. In today’s world, it is critical to have a good credit beacon score, so please be careful and use your credit card wisely.
Charging away can be extremely beneficial to your credit score and for obtaining the other benefits listed above, but it’s IMPERATIVE that you always use your credit card wisely and timely pay. Therefore, if, and only if, you are capable of being extremely disciplined, then charge away, but timely pay.