It’s the holiday season — a time of celebration, gift giving and spending. It can be tempting to lessen the impact of that spending by charging purchases on credit cards.
What credit cards offer is really appealing. They allow consumers to buy things now and pay for them later, without touching your checking or savings accounts. But these small pieces of plastic can also lead to debt, sometimes deep and long-lasting.
How quickly we pay off that debt is illustrated in your personal credit score.
Laurel Renkert is a financial advisor with Waddell and Reed, Inc. in Anchorage. She says it is important to know that number.
The importance of credit scores: It’s essentially a grade that you have for how fiscally responsible you are. Instead of getting an A or a B or a C, you’re going to get a score of…all the way up to 850 for your credit. And it just rates your ability to borrow money from the credit card company and pay it back at the end of the month.
Finding your credit score: It’s very easy to find your credit score now. I would say most banks and credit card companies probably send you an email every month, like, here’s your FICO score, check it now. And there’s nothing wrong with doing that. It’s not some sort of scam if it’s through your bank or credit card company.
Finding your credit report: Annualcreditreport.com is what the Better Business Bureau recommends for finding that credit report for you and looking through it…and sometimes they make mistakes. So I think that’s pretty crucial if you’re not happy with your credit score, and/or you want to improve it, to look at that credit report with a fine-tooth comb as much as you can and see if there are any issues with it.
Interest rates: The interest rate on a credit card is the amount you pay for anything at the end of the month that you don’t pay off.
Credit card debt: You don’t want to get into the habit of having a balance owed on your card every month. Basically what that means is you can’t afford to be spending what you’re spending. It would be an indicator that you’re living beyond your means.
Paying off debt: I think the simplest way to prioritize is to at least make the minimum payment on every card and then if you have resources above and beyond, you would want to pay off the cards that have either the highest interest rates or the highest balance owed.
Building credit: Even if you’re a high school student but you have a job, I think a lot of people’s parents probably pay their cellphone bill. But that’s something that you could put on your own credit card as a teenager and start to build credit of your own…and you can also get what’s called a secure credit card through your bank. It’s basically like a debit card. They’re not going to let you spend more than $500 if that’s the limit. So there’s no possible way to over-extend yourself.
Securities and investment products and services offered through Waddell & Reed, Inc., member FINRA and SIPC. Insurance products are offered through insurance companies with which Waddell & Reed has sales arrangements. The information presented on this show is solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy any financial product or service mentioned. Any opinions expressed are those of Laurel Renkert and is
subject to change, based on market and other conditions. For more detailed information regarding any of the topics discussed on today’s show please call (907) 331-0188. Waddell & Reed does not offer tax or legal advice; please consult with a professional prior to making any financial decisions.