A credit card can give you more financial freedom, but it can also put you in debt and affect your credit score in a negative way if you’re not careful.
Whether you have one or several, it’s crucial to understand what the best way to use a credit card is so you can be smart with your money.
Read on to discover a few ways you can use your credit card more diplomatically so that your finances and your scores stay at a healthy level.
Best Way to Use a Credit Card: Build Your Credit
If you don’t currently have any credit or your scores are low, you can use credit cards to help get you back on track. When you use this method, be aware that you’ll need to make payments on time and keep your open balances low or at zero.
A credit card can help you build your history and show other lenders and creditors that you’re able to handle your money. Over time, your fast payments and low balances will make your FICO score increase.
Pay attention to the interest rates you’re offered and make sure that you’re getting the best deal possible. Just because you can get a credit card doesn’t always mean you should, especially if the rates are extremely high.
Once you have a few credit cards open, you can use them to build your credit up. Make sure you always pay on time and keep your utilization rates low in order to give your credit score a boost.
Using Credit Cards to Earn Rewards
For those who consider themselves good with money or already have decent credit, the best way to use a credit card is to reap some of the rewards. Many banks offer a variety of rewards to their most esteemed cardholders.
Take a closer look at the current rewards programs your cards have. if there’s nothing you like, open a few new accounts with banks who have the best deals out there for reliable account holders.
If you enjoy traveling, choose a credit card that will give you discounts on things like car rentals, airfare, and hotel stays. If shopping is your thing, select cards that give you a significant percentage of cashback each month on every new purchase. Whichever rewards card you choose, just make sure you’re paying it down each month so that the rewards stay worth it in terms of the financial benefits they provide.
Unfortunately, many people don’t have enough cash in the bank to cover emergencies like a missed payment, a hospital bill, or vehicle troubles. If this applies to you, a credit card can be an extremely helpful way to pay for things when you’re in a pinch.
Set a credit card aside for this very purpose, and dedicate it to emergency use only. When you do this, you’ll at least have peace of mind knowing you can pay for things that come up if you don’t currently have the cash in your pocket.
If you use your credit card for an emergency expense, just make sure you pay it down or off in full as soon as possible. Put the card back in its place and don’t continue using it for other things unless you absolutely have to.
A credit card can be a great help in extreme times of need, but it should never be a complete safety net if things go wrong. Try to set up a high-yield savings account and put money aside so you’ll be able to pay for emergencies in cash in the future.
Using Credit Cards for Large Purchases
If you need new furniture or you’ve been eye a new TV set, your credit card might be the best option when it comes to financing. Take a look at your card’s purchase APR and if it’s low, it might be the best way to buy big-ticket items.
Shop around and look for deals so that your purchase won’t be financed for too long. You can also ask retailers what type of financing they offer since many will give customers a zero percent interest on new purchases for several months or the entire life of the loan.
While using your credit card to finance major purchases can be beneficial, its always best to make sure you’re getting the best deal from your card issuer. Sometimes, it’s better to go directly through the retailer or you might be able to get a personal loan with a lower interest rate. However, credit cards can be a quick and easy way to buy the things you want or need in a pinch.
Read the fine print of your credit card’s terms and policies to make sure it’s the best option for new purchases. Promotional rates can be tempting but they also end at some point, and you’ll be left paying the higher rate if your purchase is not paid in full.
Credit Cards Can be an Ally
If you’re responsible with your monthly payments, these tips are the best way to use a credit card to your advantage. Think of credit cards as a financial tool to help you build your credit or pay for an unexpected emergency.
You should never use a credit card as a means to pay for everyday expenses. Instead, use them for the rewards or to help increase your score by making timely payments and keeping balances low.
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