6 Ways to Use Credit Responsibly

Find out how to keep your credit accounts open without overspending.

Credit cards aren’t inherently bad. In fact, building a credit history is usually necessary if you plan to finance a big purchase like a car or home. Use these tips to maintain a good credit score—and keep your loan rates low.

What’s Your FICO Score?
When you apply for a mortgage or a loan, your FICO credit score determines what interest rate you’ll pay. (FICO is short for “Fair Isaac Corporation.”) This score is calculated by assessing several aspects of your payment history and credit account balances. Here are the most important ways to keep that number high after you’ve paid off your debts.

1. Don’t close all of your accounts. Closing your credit card accounts is the biggest credit mistake people make. Remember, you are rewarded for credit that’s available to you that you are not using.
    
2. Do close accounts with high interest rates or fees. Once you’ve paid off your balances, close accounts that charge annual fees or that have interest rates that are unreasonably high.
    
3. Use your credit cards periodically for small purchases. Some credit card companies close accounts that have been inactive for a certain period of time. Set a low dollar limit and use your active cards from time to time.
    
4. Use reward cards. Certain credit cards offer rebates on purchases, which can help you save on those periodic expenses you’re charging.
    
5. Don’t carry a balance. Pay off your cards in full each month.
    
6. Request a higher credit limit. If you’ve been making timely payments, you may have to ask your credit card issuer to receive an automatic increase, which can help improve your debt-to-available-credit ratio.