If you’re looking to impress friends at a dinner party, you might do some research to find the favorite recipe of some well-respected chefs. You know that if an expert recommends the recipe, it probably has some element that makes it stand above everything else they’ve ever made. Maybe it has a unique twist, or uses an interesting technique – or just consistently comes out amazing.
We defer to experts because they’ve put in the work we don’t have time to. It’s the same for any profession, from car repair to childcare. We want someone in the know to let us in on their best secrets.
If you’re looking around the internet for financial advice, you probably want to hear it from financial experts. But what have they been told that changed their lives? What nugget of wisdom stands above the rest? What’s the best advice they ever got?
Pay your cards in full
“The best credit advice I ever got was from my mom,” said personal finance writer Karen Cordaway. “She told me to always pay my cards in full at the end of every month so I wouldn’t have to pay interest.”
Takeaway: One of the biggest credit myths around is that you should only pay a portion of your credit card bill every month or you won’t build any credit. Unfortunately, this myth is more than just a piece of bad advice – it’s also incredibly expensive to carry a credit card balance. The average credit card APR is about 15% and carrying a balance, even a small one, from month to month can cost you hundreds in interest.
The best time to pay off a credit card bill is when the statement has posted, so wait until after then to make your payment. If you pay your bill before the statement, then the credit card issuer reports no card activity which won’t improve your credit score.
Set up autopay for your credit card bills so they’ll always be paid in full, between the statement date and the due date.
“The best credit related advice I ever received was: never cosign for someone,” said financial planner Katie Gampietro Burke CFP® of Wealth by Empowerment.
Takeaway: Cosigning on a loan for a friend can work out perfectly, but it can also have disastrous consequences. A loan you cosign on will be on your credit report until it’s paid off, which might affect your ability to qualify for new credit.
If the borrower stops paying or makes late payments, your credit score can be affected for several years. Not only can this ruin your ability to buy a home, but it can also damage your personal relationships.
When a friend or significant other asks you to cosign for a loan, tell them that you have to be careful of your credit and explain that your score could suffer even if they pay the loan back. They might not know what you’re risking by cosigning.
Avoid new card offers
“The best advice I got, and now give, was to stop accepting all those new credit card offers with tempting low rates, not knowing that every time I opened a new card my credit score suffered,” said financial planner Eric C. Jansen of Aspen Cross Wealth Management. “The same is true for those department store cards.”
Takeaway: Ever open your mail to find pre-approved credit card offers? Or check out at a store to have the cashier ask if you’d like to open a store card to get an extra discount? That’s what Jansen is talking about.
Opening new cards is tempting, especially if they have extra bonuses and discounts that claim to save you money. But every time you open a new card, you decrease the average age of your credit, which is responsible for 15% of your total credit score. Plus, new credit cards show up as a hard inquiry on your credit report, which will also decrease your score.
This is a big deal for those who are looking to apply for a mortgage or auto loan, since too many new inquiries make a lender uneasy. Avoid opening a credit card unless you’re not in the market for a new loan and it offers a great deal, like two free round-trip international flights.
Leverage credit cards for rewards
While some personal finance experts dismiss the idea of using credit cards strategically, they can be a force for good if you’re responsible with your money. That was the advice given to financial planner Josh Cumrine of Cumrine & Co.
“Credit card use is not a bad thing, when managed properly,” he said. “If you are going to use a credit card, find a card that offers rewards of some sort (cash back, airline miles, etc) and pay them off in full every month.”
When looking for a credit card, consider what you need it for. Do you want a reliable cash-back card? Do you want to find a card that rewards you with free flights or hotel stays? Do you want a business card with a high credit limit?
No matter the kind of card you get, pay off the balance in full every month and never use more than 30% of the credit limit. That will keep your credit score high and prevent you from getting into credit card debt.
Avoid 0% financing
Financial planner Jeff Rose of Good Financial Cents said the biggest piece advice he ever got was when he almost bought “a new flat screen TV with 0% financing that Best Buy was offering.”
“It was so tempting because my TV was seriously outdated and I was tired of squinting to watch anything on my 32″ antique,” he said. “But the truth of the matter is, I couldn’t afford it. I could have probably made the payment work but it would have been tight and the minimum payment was all I could ever pay which means the TV would have cost me triple the price with interest.”
Takeaway: Even though 0% interest sounds like a great idea, it’s just one more way for companies to get you to buy something they know you can’t afford. If you accidentally miss a payment or pay late, your APR will change from 0% to a much higher rate. Plus, many 0% offers are temporary and after a few months, they’ll transition into the standard interest rate.
“Best advice is don’t buy new until you can pay cash first,” Rose said.
Even though it can take several months, try to save up for that item in cash. Hoarding your pennies to buy something will make you more appreciative of it and you might even decide that you don’t want to spend that much. If you do get a 0% offer, read the fine print carefully to see when the interest will switch from 0% to the regular APR rate and pay it off before then.
Get started early
I may not be a CPA, but I can’t resist telling you about the best financial advice I ever received. Thankfully, this advice came from someone who is a CPA – my mother.
When I was a teenager, my parents suggested that I become an authorized user on their credit card. They expected me to pay them back for whatever I purchased, so I eventually wondered why this was even necessary. Couldn’t I just keep using the debit card I’d been using for years?
My mother explained that in order to have a good credit score as an adult – something I’d need if I wanted to be a fully-functioning adult – I needed to build a responsible credit history first. Using my parent’s card was a way to do that safely, knowing that my parents would always make their payments on time.
I didn’t realize how much this benefited me until I talked about merging finances with my fiance – and learned he had no credit history. A responsible consumer in his own way, he’d simply paid for everything with cash his entire life. It took us over a year to get his credit built up to a respectable level.
Restrictions on authorizing users have changed since I was a teen, and the viability of that strategy varies by card issuer. But even if that’s not an option for your child, encourage them to sign up for a card as soon as it’s feasible. In the meantime, you can teach them about the importance of credit and how to manage it responsibly.
Use your credit report to fix your problems
Personal finance expert Miranda Marquit of Adulting said a credit report can highlight what you’re doing wrong with your money and how you can fix it.
“Your credit report can give you a basic idea of what you need to improve on,” she said. “Have a lot of missed payments? Catch up with your credit. Large amounts of debt? Time to pay it down. From the length of your credit history to how much you owe, your credit report can be a tool to help you pinpoint financial issues and work to fix them.”
Use your report as a stepping stone to better credit and a better holistic financial life.
The bottom line
Keeping track of your credit doesn’t have to be a time-consuming process. Set a reminder in your desktop calendar or phone to check your credit score every few months. If you see everything is in order, give yourself a pat on the back. If something is amiss, find out what the problem is. If you do that, pay your bills on time and only use a little bit of your available credit, you don’t have to worry.