Getting a new credit card is always exciting. You look forward to making that first purchase without realizing the huge bills waiting at the end of each month. In today’s world, some people cannot live without their credit cards. It has become almost a necessity – especially if you want to build your credit rating.
However, not all people are smart enough to know how to use their cards. Most often, they fail to use it to their own advantage. It is a common mistake, even for long-time cardholders, to get caught in a cycle of debt. Banks get richer from late payments and huge interest rates.
Here are some tips on how to use your credit card wisely. Remember that these cards are not an extension of your wallet. It must be used to take full advantage of deals, exclusive benefits, and rewards.
Pay the balance in full and always on time
Be a responsible card holder and pay bills on time. If deadlines are missed, the interest rates on the outstanding amount get higher and late payment fees are incurred. Set up a direct debit to ensure that due dates are met.
One of the benefits of having a credit card is the “grace period” that gives you three to four weeks allowance before the billing statement arrives. While there is an option to partially pay credit card bills, it is also advisable to pay the balance in full. If the balance is not paid in full, the next month’s bill will show the interest charge that keeps increasing until the balance is fully paid.
Payments on credit cards should not be an added expense. Be wise and do not purchase anything that you cannot pay in full when the statement comes.
Paying bills on time and in full are key factors in building up a good credit score. Lenders will check financial history to know how trustworthy and responsible you are when it comes to paying loans.
Pay more than the minimum amount required
While it is ideal to pay the balance in full at the end of each billing period, there are times when it cannot be done. Pay what you can afford – at least more than the minimum amount. Remember that if the minimum is only paid each cycle, it could take years before the debt is paid off since you will probably only end up paying interest rates and not the outstanding amount. Check your bills every month and double the minimum payments as much as possible.
Be mindful of your credit limit
One important tip on how to use your credit card is to keep an eye on your credit card limit. That piece of plastic can either work to your advantage or against your finances. Keeping track of your expenses is the smartest way to use your credit card.
Take note that the credit limit is not a signal for you to splurge. A maxed-out credit card is always a red flag to any banks. Stay at least 25% below your credit limit.
Take advantage of rewards and benefits
Most credit cards have perks with every purchase you make. These rewards and privileges may include miles, cashbacks, and discounts on affiliated products and services. Use them to your own advantage. Choose reward cards that best fit your lifestyle. Do not pick a card that offers miles when you are not so keen on travelling. Instead, use the ones that offer discounts from big stores.
Also, be on the lookout for discounts and promotions offered by credit card companies for a limited period only.
Note important charges and watch out for hidden fees
By law, no credit card companies should hide any fees. Some companies get around this by printing the information on the back of the application form using legal terms an average customer may never understand. And you will never realize any of them until you have started paying them.
Some fees and charges are mandatory and normal, while some can be avoided. Watch out for charges like annual fees (most companies would normally have this waived on the first year), processing fees, late payment charges, cash advance fees, balance transfer fees, foreign transaction fees, overdraft protection fees, and going over the credit limit. Know these things before signing up.
On a final note, remember that most credit card companies are there to make money. However, they may impose guidelines that take advantage of consumers. Never use your card blindly and read the terms and conditions properly.
To learn more about how you can use your credit card wisely and build a good financial status, visit us at Calcite Credit Union today. We offer wealth management services and assistance with mortgages, loans, and credit cards.