Credit cards make paying bills, and making purchases online, safe and convenient. Moreover, this payment method says a lot about a person’s financial status. To get a credit card, you have to at least demonstrate the ability to repay your debts. At the same time, consumers are constantly warned about the dangers of credit card debts. Because of this there is a segment of consumers who either live without credit cards altogether or never learn how to use them properly. If you learn how not to be afraid of credit cards you can get better interest rates, receive rewards, and help get yourself out of financial emergencies.
Credit Cards Are Not Free Money
Even if you have no or bad credit there is likely a credit card that you can qualify for. Initially, consumers usually get credit cards with small credit limits of $250 to $500. Once you get a credit card in your name that can be used with virtually all merchants, you might strongly consider going out and spending until you hit the limit. Remember that credit cards are absolutely not free money. Whatever you spend has to be paid back, and if you let the balance carry over from month to month you will spend hundreds up to thousands in interest. Understanding how and when to your use your credit card will allow you to get the most possible out of them.
Figuring Out the Perfect Amount to Spend
Spending the right amount of money on your credit card can be hard to figure out. You might work credit cards into your budget or simply use your credit card when you start to run low on cash. Quite simply, the perfect amount to spend each month is no more than 10% of your credit card limit. Realize that credit card companies report a lot of data to credit reporting agencies. Everything from your total credit line to the amount you have spent is recorded on your credit file. It can look bad to potential lenders if you are constantly near the limit. Instead, keep your spending at around the 10% mark so that you can pay the balance in full each month and regard yourself as a responsible consumer.
Harnessing Credit Cards to Build Your Credit Score
There are a select number of financial products that can be used to build credit. Paying back a student loan will help to build your credit score, but you have to have a reason to take one out. Mortgages are used to purchase real estate, but it takes most people many years before they are financially stable enough to buy a house. On the other hand, credit cards are available to all types of consumers. Cash off credit cards are attractive to consumers who like deals, to utilize coupons, and cash in rebates. Secured credit cards are used mostly for credit rebuilding purposes. Student credit cards are marketed to young adults who may not make a lot of money but still want to work on building their credit files. Leverage credit cards to boost your score and lower the interest rates that you pay.
Taking Advantage of Cashback and Other Credit Card Rewards
If you pay off your credit card balance prior to the due date, you actually end up breaking even. Credit card companies are in competition, so they offer incentives to help attract the most consumers. A credit card reward might consist of cashback, so you can end up getting anywhere from $1 to $3 for every hundred that you spend. If you are a frequent flyer, you will get points that can be converted into free flights or even airline ticket upgrades. If you use them correctly, you will actually be able to make a bit of money by using your credit card instead of paying credit card companies anything in interest.
First, be aware of when your billing cycle begins and ends. Next, always make sure that you pay your credit card balances at least five days before the billing cycle closes. Lastly, see which rewards are available and when any points might be set to expire. You can get gift cards or even cash transferred directly to your bank account simply by using your credit card regularly and paying all of the balances owed before they are due.
Ensuring You Don’t Get into Credit Card Debt
When you responsibly use your credit card, you are eventually going to be rewarded by the credit card issuer. Say you start off with a credit card that has a $500 credit line. Over the course of six months, you might rack up $50 worth of purchases each month, then pay it back before the end of the billing cycle. The majority of consumers will end up getting what is known as an automatic credit line increase. If your credit limit then went from $500 to $1,500, you may feel the need to start spending even more each month. Avoid going into debt by spending only what you can afford to pay your credit card issuer back. In fact, you can tell your credit card company that you would prefer not to have an increase if you don’t trust yourself. As long as you demonstrate responsible behavior, you can always request a credit limit increase in the future when your finances improve.
The long story short is that you should only use your credit cards if you are sure that you can pay off the balance. Sure, there can be times when having a credit card comes in extremely handy, like when you need to make a major car repair. However, the fact remains that lots of consumers use credit cards like free money they can harness to purchase what they want instead of what they need. Use self control and restraint when going shopping, and leave your credit card at home if you think you’ll be tempted. Remember all of the ways that credit cards can help you to increase your credit score and you will be more likely to use them in a responsible way.