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Large Purchases on Credit Cards
Posted: October, 2014
Here we are talking about how large purchases on credit cards affect your credit rating.
When we mention large purchases different amounts come to mind for different people. Some people will thing into the thousands, while others will think five hundred dollars.
The first question would be to ask yourself if you really need this item or if you can really afford to purchase this item on credit.
Since interest rates are so high for credit card purchases you need to look for any alternative for large purchases other than putting them on your credit card.
Zero Interest Offers
Many card providers make some very appealing introductory offers in order to get consumers hooked into a large balance that they will take a long period of time to pay off.
For instance, I have a friend that was building a small home for her elderly parents and got a "zero interest for 18 months" offer from of a couple of credit card providers. She had been trying to pay for the house as she went but ran out of money before she could get finished. Having no patience to wait until she could save up some more money she charged the hardwood floors and the kitchen cabinets on two of these cards with the intent of paying off the balance before the 18 months was up.
However, as many people do she found other things that she needed or wanted to spend her extra cash on, such as a new refrigerator, landscaping, concrete walks, etc. So, as you would guess she was only paying the minimum payment required on her credit card debt.
Before you knew it some nine months had gone by with her making just the minimum payment and her income was not going to give her enough money to pay off the balance before the zero interest offer expired.
So, now she was going to be faced with a large balance at the end of the offer period and paying a high interest rate.
Be sure you have the discipline and the means to pay off any balances you put on a credit card with these types of offers.
Credit Balance vs. Credit Limit
One factor in calculating ones credit scores is where there credit balance stands with respect to their credit limit. You want to keep your credit balance at around thirty to thirty-five percent of your available credit.
This is termed debt/credit utilization and has an influence on your credit score calculation. You can improve your credit utilization percentage by either paying down your credit card debt or having the credit card company increase your credit limit.
Making large purchases on your credit cards won't necessarily affect your credit scores unless you have charged enough to get your credit utilization percentage out of the ranges we just discussed.
Be mindful though that you don't just increase your credit limit so you can get deeper and deeper into debt.
Credit Card Interest Rates
Making purchases by charging them on your credit cards is one of the higher interest rates that one can pay for borrowed money.
If you have large purchases to make, and you can't wait until you can pay cash, then look for other means of borrowing the money which will allow you to do so at a much lower interest rate.