Real Talk: Credit Cards and Black Friday

text reads real talk black friday and credit cards over a foggy forest

Real Talk: Using credit cards this Black Friday/Small Business Saturday? Some pitfalls to be aware of…

Yesterday was Black Friday and today is Small Business Saturday!!! The days which, for the past 40 years or so, has been dedicated to shopping and notorious for sales, sales, sales! This year it’s a little more like “black November” in my opinion, as sales have been running throughout the month. It can be a dangerous time to rack up debt; especially with high interest credit cards.

Thinking about getting a high priced item?

For those of you who were able to snag a PS5 or XBOX Series X; congratulations! Did you have the funds to buy it or are you planning to carry a balance on a credit card for that? It can be quite tempting but you should keep in mind the money that your card will charge you for the balance. Make sure that you understand the interest rate on your card and whether or not there are any additional fees that you will need to pay.

Using credit cards can be great thing, if done correctly.

Not all credit card debt is bad. In fact, your credit score can benefit greatly from having credit cards and using them regularly. If you are able, the ideal situation for your credit cards is to pay them off in full each month. Realistically, this is not always possible. In cases where you cannot pay the balance off each month, bear in mind the additional cost. Credit card companies give their interest rates as an APR (Annual Percentage Rate) but they actually charge monthly (or sometimes daily, check your card agreement). That means that if your APR is 24% then the company divides that by the number of months and charges that amount. For an APR of 24% you are getting charged 2% of your monthly balance each month. That can add up quick and, if you are only making the minimum payments, can lead to a very high balance quicker than you’d think. These fees can also go above your approved credit limit (that limit is for your spending, not the total balance) so you could max our your credit cards if you are not careful. You also get a ding on your credit report for late payments of 30 days, 60 days, 90 days and 120 days. If you miss the payment by a day or two the company will charge you a late fee but it will only affect your credit score if you are 30+ days late.

So, what good can even come from using credit cards?

Using credit cards properly can raise your credit score. Your credit score is helpful when renting or buying a new home, when buying a vehicle, and even when opening a new bank account. Factors that can improve your credit score are:

  • Length of relationship (the longer you keep a card open the better your credit score boost) Alternately, closing credit cards out entirely can hurt your score so be aware of that

  • Ontime payments; each time you pay your balance off in full it looks good on your credit report

  • Amount of available debt; if you have not enough debt or too  much it can affect how lenders look at your report. If you have one credit card for $1,000, then a mortgage company might not be willing to give you a $500k mortgage. Alternately, if you have 20 credit cards that with limits that total $100k, then a lender may not want to offer you additional credit.

  • The amount of current debt you have; if your current credit cards are maxed out, that can hurt your credit report a little. The balance to shoot for is to have no more than 80% of your available credit line in use at one time.

Credit cards can be a very useful tool in your finances and, honestly, I think they are necessary for proper adulting even if you use them only to boost your credit score. The pitfalls can be deep so make sure that you understand your cards and the rules around them.

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