A creditcard being used for good.

5 Smart Ways To Use A Credit Card

Credit cards often get a reputation as being a bad thing for your finances and your credit. Sure, when misused, a credit card can do a lot of damage. If you are smart however, you can use credit cards to actually improve your financial situation. Here are 5 ways to do just that with credit cards.

1) Take Advantage of Zero Percent

If you can qualify for a card with a zero percent interest rate, it would usually serve you well to take advantage of it. With a no interest card, the card issuer is literally paying you to use their money.

The trick to taking advantage of these offers is to not use the card to pay for anything that you would not already be buying. If you already intend to treat yourself to some new tools, for example, put them on the card and use it for free tool financing. Then, take the money that you would have spent and let it accrue interest in a savings or investment account. When it is time to pay off the card, you have the money waiting in a bank account.

The interest or dividends that you earned off of this money in the meantime will be your profit from using your zero interest credit card. An easy way to make money, if you are disciplined.

2) Consolidate Other Credit Cards

Even if you can not secure a zero percent interest rate on a credit card, there may be benefit to consolidating your debt on one credit card.

For starters, it makes paying your bills a bit easier. Instead of having to make several payments each month, you can get your debt paid with just one. Making it easy to pay your bills can help prevent late pays which could wreck your credit rating.

Second, you still may be able to save money on interest. Every little bit helps with credit card interest and even moving debt from a card with 20 percent interest to 15 percent interest would be beneficial. In this example, that is roughly 100 dollars a year in interest savings for every 2000 dollars in debt.

Lastly, transferring debt from one card to another can cause your credit card issuer to increase your credit limit on the paid off card. This will increase your available credit and decrease your credit utilization. Both of these things that can boost your credit score, just do not be tempted to use all of your new credit.

3) Earn Rewards On Daily Purchases

Instead of using a debit card to pay for bills, you can use those reward credit cards to get something back on your daily expenses. Just think about how many airline miles you could start earning if you put bills like your utilities, car insurance and even your rent on a credit card.

Once again, the key here is to not spend any more than you would have spent with cash. Pay for your daily expenses and then use your saved cash to pay off the bill when it comes due. Then you get the rewards with no interest to pay.

4) Get Cash Back On Big Purchases

If you have a big expense coming up, it would pay big to put it on a credit card that offers cash back on the purchase. Not doing so would be simply giving money away.

As an example, take that new treadmill you have been eying. Pay cash and buy it or use a cash back credit card for short term treadmill financing. Then, when the bill comes due in a month pay the card off and pocket the cash back. Depending on your offer, this could be an easy 50 to 100 dollars in your pocket. Just be sure to spend no more than you would with cash and pay off the balance completely.

5) Establish Your Credit Rating

Like it or not, credit cards are a big part of your credit score. The credit bureaus look at how you use your credit cards responsibly to help determine your score. The main ways they do this is by looking at you payment history and your credit utilization. Manage both well and your credit score will benefit.

As far as payment history goes, just make sure you pay your bill when it is due. It is as simple as that. There is a bit more to credit utilization, but it is equally as simple.

You should ideally be using under 10 percent of your credit to have excellent credit utilization. You have probably heard that you need to be using under 30 percent, but this will only get you into the good category. If you want excellent credit utilization, you need to be using less then 10 percent. Since credit utilization makes up about 30 percent of your credit score, this is a big deal.

Summing It All Up

As you can see, there really are some benefits to credit card use. The trick is to use them responsibly, as if you did not need the money. If you can use your credit cards, but maintain the discipline to pay then off when you get the statement, you can reap some nice financial perks. Just remember, the credit card companies are in this game to make money, so discipline is key.

Posted by
James Car

James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.