Anatomy of a smart credit cardholder

Using a credit card is easy. Grasp it between your thumb and forefinger, swipe it through a reader and, like magic, your purchase is rung up. However, being a savvy credit card customer — one who deftly avoids burdensome balances while enjoying all the perks offered by credit-issuing companies — takes a bit more effort, engaging multiple body parts, so to speak. This handy credit card anatomy chart shows you what you need to know to keep your debt load low and your credit score safe.

 

Using a credit card is easy. Grasp it between your thumb and forefinger, swipe it through a reader and, like magic, your purchase is paid for. However, being a savvy credit card customer — one that deftly avoids burdensome balances while enjoying all the perks offered by credit-issuing companies — takes a bit more effort, engaging multiple body parts, so to speak. This handy credit card anatomy chart shows you what you need to know to keep your debt load low and your credit score safe.

1) Keep your eyes open
Read your statements closely each month. Better yet, check in on your credit card online every week, or at least bi-weekly, which can help you stay on top of fraudulent charges. Some cards, such as Capital One, offer an e-mail alert system where you can receive a message when a charge is made — if your card offers such a benefit, take the few minutes to sign up and take advantage. The faster you know that a criminal has stolen your digits, the easier it is to mitigate the damage.

2) Speak up
Don’t like a sudden change in terms on your card or want a larger credit line? Say something. Although the Credit CARD Act of 2009 may have crimped your ability to negotiate, you may have more luck than you expect, says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies (AICCCA).

“The credit card market is saturated — everyone who wants a credit card has one, maybe two or three,” he says. “The only new customers companies can get is by stealing from each other. That’s why you’re getting all those solicitations in the mail; that’s an indication that they’re anxious to get new clients and to keep the ones they have.”

When you call, keep track of who you speak with, and if you don’t get the answer you want, “escalate the conversation to a supervisor or manager,” Jones suggests. “Very often, you’ll have some success.”

3) Be hands on
If you’re like most consumers, you have both a debit and credit card (or cards) in your wallet. Unless you’re following a strategy of collecting credit card points — and paying off the bill in full every month — you’d be wise to err on the side of swiping your debit card more often. “Use credit only when you really need to use it,” Jones says. “The smart thing to do is to know what you need to charge for and be prepared to pay it back in short period of time, if not the same month when you get the bill, then certainly within three months.”

Gail Cunningham, vice president for public relations at the National Foundation for Credit Counseling (NFCC), says there are two exceptions — when you need to build your credit history, and when you’re making a large unexpected purchase, such as when an essential appliance goes on the fritz or your car conks out and needs repair. “Responsible credit card use will help your credit score, whereas your debit card activity may or may not be reported to the bureaus,” she explains.

4) Don’t always follow your heart
Are you a compulsive shopper? You’re not alone. Take solace in the tale of Karla Schneeberger, a freelance journalist from Colorado Springs, Colo., who innocently walked into high-end boutique Henri Bendel during a trip to New York City and walked out with $500 worth of makeup that sat under her bathroom cabinet for two years before ending up in the trash. “I wound up buying so much stuff from the Laura Mercier counter that the makeup artist actually gave me her home phone number,” Schneeberger admits.

So often people let their emotions take over when making buying decisions, Cunningham says. “I’ve been in consignment stores and see clothes with the original tags still on them. If that’s you, you need to crawl inside your psyche and try to understand what void you are trying to fill through shopping. Be honest with yourself.”

Of course, sometimes you do need to make purchases, and when you do, it’s important to shop with a firm plan of what you need — and a ceiling on what you’re going to spend.

5) Strong-arm your score [point to biceps on illustration of person]
Your spending and payment decisions should always be done with building up your credit score in mind. “Never miss a payment,” Jones instructs. “Always make those payments on time. That will have the biggest impact on your creditworthiness and your credit score and on your own financial health. Also, pay more than the minimum.”

In fact, your timeliness in bill payments accounts for 35 percent of credit scoring models, making it the highest weighted element, according to Cunningham. The next highest weighted, at 30 percent, is how much of your available credit you’ve used. “Don’t max out your card,” she says. “The savvy consumer will only utilize 30 percent of his or her available limit, or less.”

6) Get a leg up on your finances [point to thighs or knee area]
Sometimes, the smartest thing you can do with your credit is to not use it. “Don’t live off your credit, and don’t rely on it as if it is your piggy bank,” Cunningham advises. “Make sure you have savings, and contribute to it.”

That strategy is especially important in times of financial stress, such as a job loss, she adds. “People think a new job is just around the corner, and they don’t adjust their lifestyle,” she says. “They live as though they still have income, and charge their expenses, and before long they’ve dug a very deep financial hole.” Instead, Cunningham recommends rolling back spending and turning to savings accounts that should be built up during more prosperous times.

7) Stay on your toes
Loyalty is often an admirable trait, but it could hurt you when it comes to credit cards. While it’s not good to switch your card allegiances too often, don’t be afraid to walk out on a card that’s ratcheting up your fees and interest rate unfairly.

“If you jump around every two to three months, canceling one card and taking another, that will show up on your credit report,” Jones says. “Credit grantors not only look at your FICO score, they also look at your credit report — they want to see what kind of spending habits you have. So it’s probably not a good idea to shift cards often. However, it is also important to get the best deal you can.”

See related:6 credit card terms you can negotiate and change, Best practices for debit card use,  The FICO 5: The components that make up a FICO credit score