Getting a credit card is a rite of passage for every newly minted eighteen-year-olds. It's exciting to suddenly feel responsible enough to hold plastic in your hand that comes in your name. It can also be the start of a slippery slope since new credit card holders often make the mistake of feeling that they are holding free money they can spend and don't necessarily have to pay back. This ends up being a burden heavier than student loans for many to carry.
The general rule is to make sure that you can pay the credit card every month. However, whether due to being a newbie or just having a major bill that you have no other way of paying besides charging it to your credit card, it can be hard to avoid making some rookie mistakes. However, rest assured that if you are patient and focused enough, you can make amends sooner than you think. Read on for more information.
Carrying a High Balance
Many people are under the impression that carrying over a high balance month to month is a great way to build credit. Nothing could be further from the truth. In fact, the more you eat up at your credit card limit, the lower your credit score will be since the credit utilization rate is a huge factor. The amount of debt you owe in comparison to your available line of credit is something you need to be aware of - if your debt is higher or equal to your line of credit, devise an action plan to begin paying off your debt straight away.
Overusing the Credit Card
Having a credit card is essential in helping you to build credit. However, you need to use it wisely. Not taking the time to be aware of how much you can spend each month is a big rookie mistake. You need to budget and plan out your expenses as much as possible; with the advancements of tech, this can be easily done using budgeting software. Otherwise, you run the risk of getting a huge bill on your credit card that can prove detrimental to you in the long run. Fix this by starting to set aside money for fixed bills such as rent, student loans, and so on, while working on establishing an emergency fund in tandem.
Making Only Minimum Payments
It's important to make your credit card payments on time. However, making only the minimum payments is a big mistake. Ideally, you would pay your bill in full, but if that is not possible, then you should pay what you can. Otherwise, you will rack up unnecessary interest charges and it will also take you years to pay off the debt. Try to make a payment plan before making bigger purchases and pay off a good chunk of that whenever you can.
Nothing can impinge on the credit score as much as missing a payment or making one too late. If you are more than a month late, then expect the credit score to decrease by as much as twenty points. This can be avoided entirely by setting up auto payments. After a few months, you'll be able to make up for the mistake and your credit score will be resuscitated.
Being Unaware of the APR
Opening a credit card blindly without understanding how much the annual fees are is a big mistake. Check how much the annual fees are, the yearly interest rate, what late fees and penalties are, and so on. This can be an easy way to dig yourself into a hole pretty fast without even realizing it. Again, a credit card isn't free money and actually comes with plenty of strings attached, so be well-informed.
Abusing the Cash Advance Option
Taking a cash advance from your credit card is helpful in an emergency. But, you should never abuse this service. It comes with exorbitant fees, high-interest rates, and is a quick way to dig yourself into a financial hole. Also, they do come with fees besides the interest, so tread carefully.
Applying for New Credit Cards
It's ok to have more than one credit card. However, don't fall into the temptation of applying to too many, or those operated by department stores, for example, just because they simply offer you a discount when you open an account with them. Applying for a new credit card initiates a hard inquiry into your finances, which automatically impacts your credit score. Furthermore, it only encourages you to rack up more debt across different credit lines, which is a terrible habit to have, and it will eventually become a very expensive one.
A credit card is a useful way of making transactions. However, there are quite a few caveats so it is best to be aware of them rather than emptily racking up consumer debt and taking forever to pay it off. You need to focus on your financial health and making sane purchases that are feasible within your budget.
3 Min Read
"How did you ever get into a business like that?" people ask me. They're confounded to hear that my product is industrial baler wire—a very unfeminine pursuit, especially in 1975 when I founded my company in the midst of a machismo man's world. It's a long story, but I'll try to shorten it.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up—even if it involved a non-glamorous product. I'd been fired from my previous job working to become a ladies' clothing buyer and was told at my dismissal, "You just aren't management or corporate material." My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Over the years, I've learned quite a few tough lessons about how to successfully run a business. Below are five essential elements to keep in mind, as well as my story on how I learned them.
Find A Need And Fill It
I gradually became successful at selling various products, which unfortunately weren't profitable enough to get me off the ground, so I asked people what they needed that they couldn't seem to get. One man said, "Honey, I need baler wire. Even the farmers can't get it." I saw happy dollar signs as he talked on and dedicated myself to figuring out the baler wire industry.
I'd never been interested to enter the "man's" world of business, but when I discovered a lucrative opportunity to become my own boss, I couldn't pass it up.
Now forty-five years later, I'm proud to be the founder of Vulcan Wire, Inc., an industrial baler wire company with $10 million of annual sales.
Have Working Capital And Credit
There were many pitfalls along the way to my eventual success. My daughters and I were subsisting from my unemployment checks, erratic alimony and child-support payments, and food stamps. I had no money stashed up to start up a business.
I paid for the first wire with a check for which I had no funds, an illegal act, but I thought it wouldn't matter as long as I made a deposit to cover the deficit before the bank received the check. My expectation was that I'd receive payment immediately upon delivery, for which I used a rented truck.
Little did I know that this Fortune 500 company's modus operandi was to pay all bills thirty or more days after receipts. My customer initially refused to pay on the spot. I told him I would consequently have to return the wire, so he reluctantly decided to call corporate headquarters for this unusual request.
My stomach was in knots the whole time he was gone, because he said it was iffy that corporate would come through. Fifty minutes later, however, he emerged with a check in hand, resentful of the time away from his busy schedule. Stressed, he told me to never again expect another C.O.D. and that any future sale must be on credit. Luckily, I made it to the bank with a few minutes to spare.
Know Your Product Thoroughly
I received a disheartening phone call shortly thereafter: my wire was breaking. This horrible news fueled the fire of my fears. Would I have to reimburse my customer? Would my vendor refuse to reimburse me?
My customer told me to come over and take samples of his good wire to see if I might duplicate it. I did that and educated myself on the necessary qualities.
My primary goal then was to find a career in which nobody had the power to fire me and that provided a comfortable living for my two little girls and myself.
Voila! I found another wire supplier that had the right specifications. By then, I was savvy enough to act as though they would naturally give me thirty-day terms. They did!
More good news: My customer merely threw away all the bad wire I'd sold him, and the new wire worked perfectly; he then gave me leads and a good endorsement. I rapidly gained more wire customers.
Anticipate The Dangers Of Exponential Growth
I had made a depressing discovery. My working capital was inadequate. After I purchased the wire, I had to wait ten to thirty days for a fabricator to get it reconfigured, which became a looming problem. It meant that to maintain a good credit standing, I had to pay for the wire ten to thirty days before my customers paid me.
I was successful on paper but was incredibly cash deprived. In other words, my exponentially growing business was about to implode due to too many sales. Eventually, my increasing sales grew at a slower rate, solving my cash flow problem.
Delegate From The Bottom Up
I learned how to delegate and eventually delegated myself out of the top jobs of CEO, President, CFO, and Vice President of Finance. Now, at seventy-eight years old, I've sold all but a third of Vulcan's stock and am semi-retired with my only job currently serving as Vice President of Stock and Consultant.
In the interim, I survived many obstacles and learned many other lessons, but hopefully these five will get you started and help prevent some of you from having the same struggles that I did. And in the end, I figured it all out, just like you will.