Credit cards are an important financial tool and can help you build your credit. They’re also a lot safer than cash and debit cards since they offer purchase and fraud protection. But, if you don’t use your credit card the right way, it’s all too easy to amass a substantial amount of debt. So, we tell you the 4 best ways to use your credit card.
Use Your Card to Build Your Credit Score
If you don’t have a strong credit history or are just building your credit score, using a credit card could be a great first step since your payment history for the card is reported to all three consumer credit bureaus. Ensure that you make your payments in full and on time to build your credit and establish the habit of responsible borrowing.
If you have a rewards credit card, you can charge expenses to your card and earn rewards like points, cashback, and miles. If you use your credit card frequently, you can earn a lot of rewards. A word of caution – don’t make a purchase for the sole purpose of earning rewards. Only use your rewards credit card to make payments that you would have normally made, even if you didn’t have the card. Also, many rewards cards have a higher-than-average annual fee, so if you don’t earn enough rewards to offset this cost, it may not be worth having a rewards card.
Repay Your Debt
Using a credit card to pay down debt may seem counterintuitive. However, many balance transfer credit cards have an introductory 0% APR for the first 12-20 months. So, essentially, you can transfer all your unpaid balances to this card and repay it during the interest-free period. We, however, suggest you don’t use your credit card to make any new purchases until the entire balance is paid off in full. Also, some credit card providers charge a balance transfer fee, so keep an eye out for this.
Finance a Purchase
If you have to make large purchases, a credit card would usually not be the best bet for you, given that creditors usually charge a pretty high-interest rate on the outstanding balance. However, if you could get a credit card with a 0% purchase APR, you can use it to buy big-ticket items and pay it during the interest-free period.