If you’ve just got your first credit card, you’ll need to know the best way to use a credit card. It seems easy enough to use a credit card responsibly. Just whip it out and swipe it and take away your purchases. Well, there’s more to it, so here’s some credit card advice to help you use it more responsibly and sensibly.
Should I get a credit card? Credit cards are a very useful and powerful tool, but they could become dangerous if you don’t use them responsibly. When you use your credit card, the bank loans the amount to you for making a purchase. You then get a grace period of a month or so during which you can pay it off, after which the interest begins to add up.
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Why use a credit card? When you apply for credit card, it’s like receiving interest free credit up to a month. If you pay up the amount before the due date, you don’t have to pay any interest on the amount.
But if you are constantly in the habit of not paying up the balance each month, the interests start accumulating, you become more dependent on the card and your credit score starts plummeting.
In the worst-case scenario after a credit card application, you could also end up bankrupt with the best credit cards. So here are the best ways to use your credit card sensibly and avoid the typical pitfalls.
6 Ways to Use a Credit Card Sensibly – Tips
#1. Paying Off the Balance Each Month – How to Use Credit Card
There’s a myth going around that you need to leave a small balance amount unpaid on your credit card in order to improve credit scores on student credit cards. Sadly, that’s not true. Leaving balances will only result in interest piling up.
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Payment history is a very important factor on which your credit score rests. After you get a credit card, if you make the credit card payment on time every month, rest assured it’ll do your credit score a world of good.
Make small purchases using your top credit cards every month and then pay it in full within the grace period. If for some reason, you are not able to do so, keep the balance as low as you can.
#2. Which Credit Card to Use
You’re probably saying to yourself ‘I need a credit card’ or ‘When can I get a credit card’. Well, anyone above 18 is eligible for it but you need a proper income source and not just a monthly allowance from parents.
Once you’ve got your credit cards, you also need to be constantly aware of the card you are using. For instance, a credit card stipulates that you need to spend $5000 within 3 months’ time in order to get the bonus reward.
Which credit cards I can use? Try using that card for all purchases in order to receive the reward. But don’t go overboard on this. If you feel spending $5000 is extending your budget for the month, this card is just not right for you.
#3. Signing up for Rewards
If you’re wondering ‘where can I get a credit card’, compare the deals available at creditcards.com. Most credit card companies try to entice customers with rewards like discounts on your purchase or a cash back reward.
For instance, if there is a cash back reward, you could get about 1% to 5% cash back on each purchase. But if you were to carry the balance for over a month, the advantage would be lost, as you’d be paying an interest.
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For instance, you can sign up for a bonus that gets you free nights at a hotel, on airfare for your holiday or other such rewards. But take care to select a signup bonus that is in line with your spending style and then apply for it. You could earn around $400 a year in such rewards by having a credit card. Make sure to read the fine print before you sign up.
However, if you want the rewards to really work for you, make sure that you pay off the card completely every month.
#4. Sign up for Tech Assistance for the Best Ways to Build Credit Fast
Use smart credit card apps like Wallaby to make the most of your credit cards. It helps you to assess potential reward points and use the right card, in order to get maximum benefit. Apps like these then send your purchase to the credit card that offers you the best deal.
You also get alerts related to earnings, transactions and so on to reduce anxiety. The algorithm analyses user information and makes sure you spend the right credit card to optimize rewards.
#5. Needs vs. Wants
What to use a credit card for? Do you really need that fancy leather jacket, or do you just plain crave for it? Of course, it would be useful in a cold climate, but does it have to be the luxurious, expensive brand?
What to use a credit card for? On the other hand, the mortgage payments, rent, groceries, car insurance, school fees, Insurance, transportation are expenses that need to be paid using your credit card. Try to learn the difference between wants and needs. Cut down usage of credit card for travel, entertainment or a gym membership as part of responsible credit card use.
#6. Credit Utilization Ratio
It is the ratio between your credit card balance and your credit card limit. It’s important to keep the ratio below 30% to get a good credit score, because it means that you’re spending more and shows that you’re more likely to default on a payment.
See that you keep the balance below 30% of the total credit that is available to you. For instance, if you have a limit of $2000, you must keep the balance below $600. All you need to know is your credit limit and your card balance.
The best way to use your credit card is by making routine checkup of your credit card information by going online and viewing your account and your recent statement. Alternatively, you can ask your issuer to increase the credit card limit, which will automatically reduce the ratio.
Credit cards offer you a free-flowing credit line, but the ease of using it is what usually gets you into trouble. You need to budget and track expenses, so that you don’t get knee deep into debt.
Check out your monthly statement regularly to see there are no suspicious purchases and that your identity is fully protected. Report lost or stolen cards. Lastly, use your credit card like you would use a debit card or just opt for a prepaid credit card, and it will pay you handsome rewards.
Don’t use your card for something that you cannot afford or which is not present in your monthly budget. Maximize rewards and points and make sure you get the maximum bang for your buck.
Practice self-control, learn to budget and there’s no way you can get into trouble.