If you put every American in a room and made them put their credit cards on a table, that table would be filled with over 850 million pieces of plastic. That’s a pretty staggering number, albeit, one that’s not particularly surprising.
People love credit cards for the simple reason that they enable them to easily make purchases even if they don’t have any money sitting in their checking account.
Sounds good, right? Well… The reality of the situation is that if you don’t know how to use a credit card correctly, you could lose thousands of dollars to interest and fees.
If you want to enjoy all of the benefits of credit without any of the drawbacks, keep reading to learn top tips from experts.
- Start With a Small Credit Limit
A credit limit is the amount of money that you can charge to a credit card before you get cut off. Usually, your credit limit will be related to the amount of money that you make on an annual basis. Just because you’re making a certain amount per year though doesn’t mean that you have anywhere near that much to spend.
For example, a credit card company might look at your $40,000 per year salary and think that you can handle a $15,000 credit limit. After taxes and your other payment obligations though, $40,000 per year could easily turn into $20,000 of expendable income.
To make sure that you don’t spend more money than you can actually afford, request a low limit from creditors. If you find that you can manage a small limit, gradually request increases.
- Pay Your Balance Off Each Month
Charging people interest on purchases is the primary way that credit card companies make their money. For the uninitiated, interest works like this:
If you were to spend $500.00 on a card that had a 20% interest rate, you’d have one month to pay your credit card company that $500.00 back. If you didn’t, instead of owing $500.00, you’d owe $600.00 ($500.00 + 20%).
The longer that you neglected to pay that balance, the larger it would grow.
To avoid paying your credit card company more money than you borrow, make it a point to always pay your balance off in full by the end of your billing cycle. You can do this automatically by going into your credit card’s portal and setting up “auto-pay”.
- Don’t Sign Up for Cards on a Whim
We’ve all been shopping at a department store and were asked if we wanted to sign up for a store credit card in exchange for 10% to 50% off of a purchase. That’s almost never a good deal.
First off, there are a number of credit cards that will pay you as much as $1000.00 as a sign-up bonus if you meet certain requirements. By signing up for a store credit card in exchange for 50% off a small purchase, the sign-up bonus you’re accepting is likely comparatively small.
Another factor to consider when signing up for a store credit card is how your credit will be adversely affected for filling out an application.
Whenever you submit a credit application, your credit score drops. If you fill out numerous credit applications within a tight span, your credit could take a significant hit.
Since lowering your credit for a few dollars off of a purchase will hurt you more than it will help you, just say no.
- Familiarize Yourself With Your Card’s Rewards Program
One of the most exciting how to use a credit card realizations that many cardholders come to is that they may receive cashback for purchases that they make.
For example, if you were to spend $500.00 on a television, you might get as much as $25.00 back on your purchase if your cashback rate was 5%. In reality, most credit cards will offer 1% to 2% back on everyday purchases and 5% back at particular stores.
Talk to a customer service representative about your card’s rewards program and learn how you can redeem the cashback that you’re earning for gift cards, flights, and other fun goodies.
- Understand That Everything Is Negotiable
Very few people know this but if you were to call a credit card company and ask them for a lower interest rate on your balance, in most cases, they’d oblige. The same is true for requesting things like higher credit limits and waived fees.
You can use that negotiating power to your advantage by levering credit card finding services like Bonsai Finance, applying for an easy to get credit card and asking for better borrowing terms as you prove to your lender that you’re a responsible customer.
- Close Inactive Accounts With Care
Once you master how to use a credit card, you’ll quickly realize that some credit cards are worth using and others aren’t. When you stop using cards that don’t offer good rewards or have abysmal interest rates, you may want to close your account to avoid stagnation fees or creditor-induced closures which can hurt your score.
To close your account the right way, call your creditor and let them know that you’d like to terminate your account. Once they notify you that your account is closed, ask to receive an email that verifies the closure and notes that the closure was at your request.
Knowing How to Use a Credit Card Can Have a Huge Impact on Your Financial Life
Credit card companies prefer that you don’t know how to use a credit card. That way, they can charge you endless amounts of fees.
By reading this article, you’ve outsmarted the banks and can now proceed confidently as you earn cashback and other perks by wielding the power of credit!
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