Credit cards can be an essential asset for your own accounts. Like any device, however, your credit card can be destructive if it isn’t used wisely.
While some people understand using a credit card wisely to mean building up a credit history, others understand it to mean not having a credit card at all.
By using your credit card wisely, you can make responsible decisions and minimize risks too.
To see smarter ways you can use your credit card, kindly go through the table of contents below.
Why do you Need a Credit Card?
Compared to other forms of payments, your credit card offers you more security. One perk of having a credit card is that you can earn reasonable rewards in various forms.
Also, with a credit card, transactions on your account can be monitored and stopped if it isn’t authorized by you. Other reasons you may want to have a credit card are:
- Free borrowing
- You can earn rewards with a credit card
- Build a good credit report
- Free insurance
- To protect your money
Types of Credit Card
The credit card comes in various forms. They are as follows.
- Purchase: This credit card is mostly used for shopping and does not accumulate interest even as you don’t pay back your balance each month.
- Balance Transfer and Purchase: this credit card type exists when you have established a credit card debt and want to split the cost of big buys.
- Balance Transfer: This is used to minimise interest on your existing debts.
- Cashback: This credit card works when your balance for the month is cleared and you don’t have plans to accumulate debts.
- Rewards: This is an alternative option for those who clear the balance every given month.
- Charity card: While you want to shop and donate to charity but think you can’t, this is your go-to card when such a case arises. It is like the cashback card.
- Store card: You get these cards in different stores. They regularly have enticing starting offers, for example, 10% off your shop that day or additional limits marked down things.
Read: How Do Credit Card Companies Make Money|2021 Full Business Model
How to Use Credit Cards Wisely
These tips are healthy ways you can use your credit card in 2021.
#1. Use one Credit Card
Imbibe the culture of sticking to only one credit card with a manageable limit. This will help you keep your spending in check and make it easier for you to turn down other credit card offers.
#2. Automate your Spending Limit
Ensure your credit card is used for a particular purchase or set up one pre-authorized charge that will linger for a set amount each month.
Do not make retail purchases with a credit card.
#3. Pay your Bills on Time
Every month, it is expedient to pay your bills early enough. How timely you handle your bill payment affects your credit score.
#4. Avoid Crossing Your Budget
Make plans for purchases and do not carry your credit card along with you when you want to go shopping.
This is to avoid impulsive expenses. Also, save up to pay up the bill when it comes.
Check out: Can I Buy a Car with a Credit Card? How to Get that Done in Less time
#5. Borrow only What you Can Afford to Pay Back
Borrowing as much as you can pay back is one way to build trust. It goes to show potential lenders how trustworthy you can be with funds.
If there’s a tendency for you to exceed your monthly budget, you can track it.
#6. Know your Statement Closing Date
If you can pay your monthly balance in full, you will get a free loan from your bank with a 21-day grace period between your statement closing date and when your bill is due.
Therefore, wade off reasons to carry out big purchases towards the end of your statement cycle.
For in delaying for a few more days, you get an extra month of time until your due date.
#7. Use the Right Card When Travelling Internationally
When planning to go on a trip outside the US, do well to reach out to your credit card companies and ask them what their foreign charges are.
It will also be wise if you furnish them with details of where you are traveling to and when you’re due back.
This is to not create a false alarm of you being a victim of credit card fraud.
#8. Be Smart About Switching Cards
As much as there are a variety of options with mouth-watering offers for you to change your credit card, desist from doing so as too much of this exercise can mar your credit score and make tracking your spending more difficult.
So, when you switch to an entirely different card, keep your account open until the annual fee’s due date.
Not only will it improve your credit score, it will also maximize the average length of your credit history.
How do credit card companies make money? We have 5 Proven Ways
#9. Read the Long Policy Agreements
Not all credit cards were made equal. While some charge yearly expenses, others charge for balance transfers, loans, or different activities.
To keep your charges reasonable, pick a card with rates and expense structure that correlate with your normal conduct.
If you plan to take care of the balance each month, you may search for a credit card with a rewards program although, it may attract a higher interest rate.
Final Thoughts
Generally, credit cards are not the best form of payment for everyone and every purchase but can be significant when used wisely. An in-depth understanding of how a credit card works aids you to make the right choice.
