Paying with plastic has its advantages. Learn how to use your credit card to take full advantage of the benefits, points and insurance options it offers, while minimizing your interest charges.
You probably already know that having a credit card can help boost your financial profile. However, switching from cash or debit to credit doesn’t just mean paying for your purchases with a new payment method. This little piece of plastic can become a powerful tool. Learning how to use a credit card to its full potential could be a great way to improve your financial management.
More importantly, using your credit card well could help boost your credit score. There are many ways that a high credit score could make your life easier. For example, you might have access to better interest rates and be eligible to rent an apartment. If you’re thinking about applying for a credit card to prepare for your financial future, here’s everything you need to know on the topic.
Three good credit card habits
A credit card is only good if you know how to manage your expenses well. Otherwise, your new financial tool could quickly turn into a burden. How do you make sure you don’t get there? Start by adopting these three key financial habits.
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Refund your purchases
When you use your credit card to make purchases, you are then responsible for paying them off. Each month, you receive a statement showing how much you spent on the card, and how much you are required to repay. By paying off your card balance in full, you’ll avoid paying high interest charges, but if you’re not able to, make at least the minimum payment so you don’t hurt your credit rating. .
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Manage your credit utilization rate
The credit limit is the maximum amount you can charge on your credit card. Your limit will normally be between $ 1,000 and $ 10,000. You shouldn’t spend up to your credit card limit, however. If you get too close to the limit, you will hurt your credit rating because of something called the “credit utilization rate”.
Your credit utilization rate is the balance on your credit card over the total amount of credit granted to you. To maximize your credit rating, try to keep your credit utilization rate below 35%. For example, if your credit card limit is $ 10,000, avoid carrying a balance greater than $ 3,500.
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Choose the right credit limit
Choose a credit limit that accurately reflects your spending habits. If you’re only going to be using your credit card for occasional spending and shopping online, a limit of a few thousand dollars should suffice. If you’re going to spend several thousand dollars on your card each month, choose a higher credit limit to keep your credit utilization rate below the recommended threshold. Also be realistic about your repayment habits. If you know that you happen to carry a balance and pay interest charges on your credit card, choose a lower limit to keep your monthly charges to a minimum.
Three Ways to Maximize Your Credit Card Value
Developing good credit card usage habits is essential. However, if you really want to get the most out of your new card, take advantage of the points, benefits, and insurance options it gives you.
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Redeem your points according to the most advantageous option
If your credit card allows you to accumulate points when you make purchases, you can, for example, redeem those points for travel bookings, items or gift cards.
To optimize your points even more, choose the most advantageous redemption method for you. You can shop normally and use your points to foot the bill, but several credit card providers also offer an online portal where you can redeem your points. The first option sounds simpler, but many times your points don’t have the same value when used this way. Contact your credit card provider to verify.
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Take full advantage of its advantages
Most credit cards offer some type of benefit. Frequent benefits include 24-hour concierge services, privileged access to concert tickets and dining, and free access to airport lounges. See your cardholder agreement to learn about the benefits your credit card offers.
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Check your insurance coverage
In addition to the usual benefits, your credit card might offer free insurance coverage for your purchases or travel. For example, some credit cards may offer loss and damage insurance (for car rental), lost or delayed baggage coverage, emergency medical care coverage, trip interruption and delayed theft coverage, or extended coverage. If your card allows you to have one of these coverages, you could save several hundred dollars on your insurance costs.
Credit cards can provide many opportunities for people looking to improve their financial health. Whether this is your first credit card or looking to maximize your current card, you should practice good usage habits. You can only thank yourself for it.
Vacation on credit without long-term debt
You’ve done the math and done the math, and the only way to pay yourself the vacation you dream of is by using your credit card. Are you doomed to stay home? Not at all.
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Money Tips is a series that explores concepts of behavioral economics and illustrates how unconscious biases can influence our financial decisions. Mental accounting can negatively impact your day-to-day financial decisions.