Why are credit cards important? Believe it or not, you don’t have to have one. However, life is far easier with a credit card than without. The make it easier to rent a car, book a hotel room, plan trips, earn rewards and actually get paid for your shopping. Credit cards have developed a bad reputation among many who have suffered the debt crisis, but it’s not a card’s fault. It is entirely possible to obtain a credit card and use it every single day without ever going into debt, and without becoming wealthy. You just have to know how to use your credit card the right way.
Educate Yourself on Credit Cards
We hear it all the time that schools are wasting their time teaching ‘new math’ and other useless facts, and that they should include a course on basic finance as part of the high school experience. As an adult, I could not agree more. It’s the job of parents to teach their kids to be responsible with their money, to save, and to remain debt-free. However, it’s not always something that they do. Furthermore, it’s not a good idea to have a parent without much knowledge of these things teaching kids how to properly spend money, save money and use credit cards.
A class on how to keep your checkbook balanced, why it’s not a wise idea to use the balance the bank give you as the amount of available funds you have in your account and how to wisely use your credit card and understand your credit is something we could all use. Did you know that more than half of all people in the United States alone believe, mistakenly, that the balance on their credit card has no effect on their credit score so long as they pay the minimum amount due every month without being late? Did you know that people apply for credit cards in store after store on shopping days so that they can earn discounts on their already unimpressive purchases (saving 15% on a $30 purchase is not a reason to apply for a new credit card). The credit card and finance basics that we need to know in life that seem a lot like common sense really are not. That’s why it’s a good idea to enroll in a course of some type that is designed to educate you on the importance of wise financial planning, credit card use and the myths and facts that go along with using your credit card.
Find the Best Credit Card
Another great tip is to find the card that works best for you and your family. Too often, people make the mistake of simply applying for the card they receive an offer for in the mail or the one they see on the internet when they are in the market for a new credit card. That’s not wise. Sure, they might be great cards; but that does not mean that they are great cards for you. There is a very specific card that works best for you and your spending habits and lifestyle. Do you love to travel? Do you love to earn cash back? What’s your lifestyle, because it has everything to do with your shopping style, too.
It might not seem like life changing advice, but that is just one more example of where you are mistaken. When you choose the right card for your lifestyle, you choose to improve your life. If you travel often, a travel rewards card that offers you a chance to earn free flights and free hotels, upgrades and the like is the right choice for you. If you like to save money, a cash back credit card might work wonders in your pocket. It all depends on what you want, how much you want to have it and how you plan on earning it. However, choosing a card arbitrarily because it’s there is not the best way to work your credit card to your advantage.
Look at the Alternatives
There is one thing that I hear people say a lot, and it’s that they don’t use a particular card for a particular reason. They look at the small picture rather than the bigger picture. For example, we travel a lot. We do not travel a lot on British Airways. In fact, we are huge fans of Spirit Airlines and Jet Blue as well as Delta. Those are our airlines of choice, and you will almost always find us one of those three (I wish Spirit more…they’re so inexpensive and have the most hilarious staff). However, the British Airways credit card from Chase is a perfect card for us. No, we will not earn additional points on the card booking travel through British Airways, which is the best way to use the card. However, we can use it every day to make our every day purchases and that’s how we benefit from this card. For one, the card offers 50,000 bonus miles (avios) to those who spend $2,000 in three months and then they offer another 25,000 points for every $10,000 you put on the card in a calendar year.
When you reach $30,000 on the card throughout one calendar year, you will have more than 100,000 bonus miles as well as two free airline tickets – first class, no less – anywhere in the world. It’s easy to spend $30,000 per year on the card and earn a point for every dollar spent because it’s only $2,500 per month. Between our mortgage, our utilities, our cell phones and our other expenses, including gas and groceries, we easily spend that. And we earn tons of miles, free tickets and get to plan a really, really nice vacation anywhere we want with that card. It works for us – even though we can’t really take advantage of the bigger earnings by using British Airlines. It’s just one tip; it might work for you. Look at the bigger picture rather than the immediate picture. To me, tickets worth thousands of dollars anywhere in the world I want to go are worth more than regular miles.
Use the Credit Card
So often we hear consumers tell others that they need to put their credit card away and spend with their debit card or their cash. However, this is not good advice. If you have a credit card that pays you for using it, you need to use it. You’re never going to earn points, rewards or cash back when you forgo using the card. You should use it all the time. Your credit card should be your go-to method for paying for anything you purchase. Use your credit card to pay for groceries, travel, gas, your monthly expenses. I’m talking your mortgage, your cell phone bill, your cable bill; anything you pay every month anyway should be paid with your credit card.
Why? Because you want to earn points and miles and rewards and cash back, and the only way to earn those is to use the card. That means using it as often as possible. It might not be possible to earn many free flights when you only travel four or five times per year, so why not use the card to pay for everything else throughout the year to earn the points and reap the benefits? You’re buying these things regardless; you have to have gas and groceries to live. If you buy them, save the cash you would have used to pay for them, and then pay your credit card bill in full at the end of the month with that cash, you are doing what you need to do to earn more points and more rewards.
The worst advice someone will ever give you is to keep your card in your wallet and use it only for emergencies. Get it out of your wallet and use it for everything, but pay it off in full each month so that you never carry a balance. A balance has a negative effect on your credit, especially if that balance is over 30% of the total available credit on that particular card.
Get to Know Your Credit Card Company
We all need new friends in our life, so why not make it a point to get to know the good people from your credit card company? They can be good friends, highly useful to you at some point in your life. If ever you want to request a lower interest rate, a higher credit limit, to ask them to keep your card activated while you’re traveling the world and not falling victim to identity theft, it’s a good idea to be on good terms with the company. The best way to do that is to pay your balances on time, never be late and always carry a zero balance. Now you have some leverage with them, and it might make sense to call and ask.
Perhaps you want to be considered for a promotion that your card company is offering new cardholders. Call and ask. If you’re on good terms with the company, they are more likely to grant your request or at least some of your request so that you can become eligible for great earnings and new point offers. It’s not a bad idea, and it never hurts to ask. Remember, the worst that they can tell you is ‘no’ to which you reply with a thank you and then you move on. If they don’t say no, they might just give you some or all of what it is you are asking for, and that makes you a winner.
Learn the Credit Card Benefits
Now that you know which card you want to use when you apply for a new card and get to really know the perks of your card, you should know what other perks your card servicer issues to their cardholders. You might already know that you can earn cash back or travel rewards, but what about the other rewards? The best way to take advantage of a credit card is to learn what it is that they have to offer. While Christmas shopping with my aunt (she’s more like a sister to me because we are so close in age and she spent most of her time in our home with my parents when we were growing up), she bought a new television for her son’s playroom. When the cashier asked her if she would like the extended warranty, she said yes. When we stopped for a Starbucks run, I asked her if her credit card issuer did not offer extended warranties.
She had no idea to what I was referring. She’d never learned that her card might offer extended warranties on items she purchased with her card. She called her company after that to ask them if they do things of that nature, and found out her card offers a number of perks she was completely unaware of for quite some time. For instance, she had no idea her car offered rental car insurance, travel cancellation coverage, lost luggage, a concierge and many more benefits and perks.
It’s my suggestion that you really get to know your card and all that you get from its benefits. She bought an extended warranty that was quite pricey when her card company already offered one to her. now that she knows what her card has to offer, she will no longer make needless purchases and waste money on things she’s already covered for. She also had no idea her card offered her a complimentary airport lounge pass twice a year. Now she knows, and now she will use those perks to her benefit – as she, and everyone else with perks and benefits, should.
Skip Store Credit Cards
There are always exceptions to the rule, but it generally stands that store credit cards are nowhere near as worthwhile as major credit cards with better perks. Sure, it’s nice to save a few dollars here and there on purchases, but you don’t really need an Old Navy credit card. I’d go for the Nordstrom card, but I’d skip the Walmart card and the Loft card and the other small retail cards that offer you nice discounts on shipping and purchases, but nothing really special in the grand scheme of life unless you purchase everything you want from those locations.
Store cards, too, are something you have to watch out for as they are sometimes issued by banks that specialize in subprime credit. What this means is that you have a card from a store that uses a bank that loves people with low credit scores, and that reflects on your credit report. You might have excellent credit, but when other creditors see a subprime lender on your report, they become less likely to want to finance you for a new card or new purchase. You don’t want that; ever.
Take Advantage of Credit Cards with Free Credit Reports
We really cannot express to you how important it is for you to check your credit at least twice a year. You might not assume you need to since you are excellent with your payments and have never missed or been late. However, someone else might have helped themselves to your identity at some point and might be taking their time rolling in the debt on your report. Additionally, we are all just human and humans make mistakes; including those who work for your creditors and credit bureaus. At anytime, someone could have entered something incorrectly by accident on your credit report; an additional zero somewhere, an incorrect date, something that might bring your score down significantly.
There are an increasing number of credit cards that offer consumers the chance to receive their FICO score on the statement each month, and that’s going to help you keep track of your score regularly. Since even the smallest of mistakes on your report could affect your score, you might end up paying more for a house with a higher interest rate, not being approved for a loan for a car or spending thousands more than you need to based on a mistake someone else made at some point in their lives. It’s up to you to ensure that this does not happen.
Find a Credit Card with No Balance Transfer APR
The best tips for using credit cards comes with this statement attached: Pay off your credit card debt. We like to think that you are smart enough not to have any, but we also understand that life happens and that sometimes it cannot be helped. However, if you have an interest rate on any balances you are carrying, all you are doing is creating more debt. When you pay interest, you pay more money, you take longer to pay off your card and you spend far more than you should have to pay off a debt. It’s our expert tip that you go ahead and find a new card with an introductory 0% APR on balance transfers for some time and make it a point to pay off that balance before interest begins to accrue on the balance. It will help you spend less, pay off your card faster and live debt free as quickly as possible.
Without doing a huge math equation here, it’s going to take you a lot longer and a lot more money to pay off a $2,500 balance on a card that’s charging you 16% interest every month. If you can pay that off in a year or 15 months without accruing interest, you’re doing well for yourself. It’s a wise decision to make, and we recommend you do this right away. Just remember to discipline yourself to pay off that balance before the introductory rate ends and you begin paying interest once again.
Use Your Credit Card for Travel
I understand that many people are too afraid of credit cards to use them; I get it. Credit cards might have caused some problems with finances in the past, and perhaps you don’t trust that this won’t happen again. However, it’s important to note that credit cards do not get consumers in trouble with debt. Irresponsible usage does, and that’s on you. However, you need one if you plan on traveling. I’ll tell you why; if you use a debit card when traveling, you have to have a big balance in your bank account. When my husband and I spent three nights in Jamaica with a group of friends a few years back, I made the mistake of leaving our Amex at home in another bag (life issues when you are a woman who switches bags and wallets all the time). We had our debit cards on us (my husband rarely carries his credit card since he has a money clip and it doesn’t offer much space for anything other than cash, one card and a license). We were able to use them. However, the holds on our bank account were crazy.
When we checked into our Jamaica hotel, we had a $100 per night hold on our card for a total of $300. When we flew home, we stayed at the airport hotel in Orlando since I had a business meeting in New York the following day, and we had a 6 am flight to catch. That was another hotel hold of $50 per night. The following night we had a room in New York, and that was another $100 hold on our card. We didn’t have a rental car or anything, but that would have added another $250 in holds. All in all, we had $450 in holds on our account. Fortunately, that didn’t affect us while we traveled, but if you’re on a budget and don’t have a huge balance in your checking account, these funds being held and unavailable for you to use for as long as a week or 10 business days might have caused big problems in your life.
Moral of the story; get a credit card for travel use even if you do not use it for anything else at any point in life.