When used sensibly, your credit card will work to your advantage. It can become your best source of instant credit offering plenty of benefits. But when used carelessly, it can be a financial burden.
Whether you are just thinking of applying for a credit card or you already have one, here are five tips to use your credit card to your best advantage.
1. Choose Wisely
Before plunging into the process of getting a credit card, it is crucial for you to know everything about it, along with the possible rewards you can get from it. As much as possible, apply for a card that offers the most relevant and useful benefits.
If you fly often, it would make sense to choose a platinum credit card that offers travel-related rewards like lounge access and has tie-ins with reputable airlines. But if you are more of a shopper, consider opting for a card that offers shopping-associated rewards.
It is important that you do not apply for a card that won’t benefit you. So if you do not own a car, you must stay away from cards offering fuel discounts.
Don’t forget to read the fine print as well. Also, take the time to compare additional credit card benefits like credit shield, insurance, lost card liability, trip cancellation insurance, extended warranties and purchase protection.
The bottom line is if you want to get the most out of the associated benefits and rewards, shop around and compare credit card options before zeroing in. This way, you can maximize all your credit card transactions.
2. Pay Your Monthly Bill in Full and on Time
Avoid hefty credit card debts by charging only what you can afford as well as paying your monthly bill in full. Remember that most credit cards charge high-interest rates if you choose to pay only the minimum amount due.
Paying your bill in full might seem challenging, but financial experts say that this is the number one rule of using your credit card to your best advantage. If you cannot pay it fully in one go, consider spreading out some small payments through the entire month. This is the only way you can complete the full payment before the bill’s due date.
Remember that buying an item that is 25 percent-off sale is useless if the finance charge is 24 percent. But if you really can’t pay it in full due to some reasons, you have to pay more than the minimum due amount because this helps lower the interest.
Aside from paying in full, make sure to always pay on time. Issuers often charge a high fee for late payments. Remember also that late or missed payments can lower your credit score.
To be sure that you won’t forget your due date, you must set a reminder on your mobile phone. You can also adjust your online banking account setting so that your bill will be paid automatically on a specified day of the month via direct bank transfer.
3. Know Your Limits
If you are worried that you may be overspending, consider lowering your credit limit to an amount you know you can pay on a monthly basis.
Another tip you can try is to have a self-imposed limit. Once you reach such limit, place your card in your drawer until the next billing cycle. This will not just help you stay on budget but will also prepare you to have a higher credit limit in case of an emergency.
4. Earn While Spending
There are credit card companies offering cash backs or reward points if you use your card to pay restaurant bills, utility bills and more. Some issuers have also tied-up with retail stores for cash back arrangements.
Make sure you keep track of such deals so you can earn reward points or cash back while using your credit card. These reward points can be used to redeem gifts from the reward catalogue of the company, ranging from gift vouchers to a car.
5. Maintain a Good Credit History
Your creditworthiness is determined by a good credit history, which is greatly affected by your credit score and credit utilisation ratio. Thus, you must keep an eye on how much you are spending even if you have a high credit limit.
Your credit score can be pulled down by credit glitches like missed payments. On the other hand, a high credit utilization ratio can make you a risky borrower even when you have a strong repayment history. Keep this ratio below 30% to increase the likelihood for lending institutions to approve your loan for travel, education or business.
Don’t be a victim of the credit card trap by using your credit card responsibly. Find the right card that suits you, take advantage of the rewards or cash backs, and don’t carry any balance each month. By doing so, your credit card can be an excellent contemporary financial asset that will make your smile.