There’s no doubt about it credit cards offer the utmost in convenience. They’re accepted everywhere and since you only get a bill once a month, you don’t have to have any cash available to pay for things when you purchase them.
A Lesson in Responsible Credit Card Usage
How you handle your credit card and loan payments directly affects your credit score and what potential lenders will see when they conduct a credit score review. In fact, it makes up 35% the largest contributing factor to your overall score. Why is this important? Your credit score affects almost every area of your life your ability to borrow money at a low interest rate (vs. a high interest rate with bad credit loans), to qualify for an apartment, to get a job, and even who will date you. So you must be very careful with the money you borrow through credit cards and loans.
Quick tips for Responsible Credit Card Use
- Read the fine print so you’re aware of all the charges and conditions that govern your card.
- In a best-case scenario, pay off your balance every month to avoid interest charges.
- If you can’t pay it off, always pay as much as you can towards your bill to avoid getting hit with big interest rate charges.
- Never just pay the minimum amount due unless you’re desperate.
- Use it (rather than a debit card) for shopping online — it’s your most secure option.
- Avoid putting daily purchases on your card so that you’re aware of how much you’re spending.
- Make all your payments on time to avoid late fees and an increased interest rate.
- Avoid getting multiple store-branded credit cards — it’s too difficult to keep track of your spending and all those due dates.
- Have a credit card tucked away that you can use in case of an emergency.
- Don’t spend more than you can pay back.
Advantages of Credit Card
1. Easy access to Credit
The biggest advantage of a credit card is its easy access to credit. Credit cards function on a deferred payment basis, which means you get to use your card now and pay for your purchases later. The money used does not go out of your account, thus not denting your bank balance every time you swipe.
2. Convenience
You don’t have to worry about how much cash you have on hand. Just remember that you can always use a debit card instead. With a debit card you won’t be in danger of accumulating debt that will be subject to high interest charges if you don’t pay it off each month, like you would with a credit card. Remember to keep track of your checking account balance to be sure you can cover what you’re buying.
3. Recordkeeping
A credit card provides a useful record of your spending through your monthly statement and online account, which would also be the case if you relied on a debit card for spending. Some credit cards do send yearend summaries, though, that can be a great resource when you’re doing your taxes.
4. Low-Cost Loans
You’re getting your paycheck in five days, but there’s a purchase you need to make today. You can charge your purchase now and pay off the charge after you get paid. The key here is to make sure you will be able to pay off the charge by the due date.
5. Cash Advances
You can get money when you need it. Be aware that cash advances often have a higher interest rate, so it’s important that you have a realistic plan to pay back those advances.
6. Building a Line Of Credit
Credit cards offer you the chance to build up a line of credit. This is very important as it allows banks to view an active credit history, based on your card repayments and card usage. Banks and financial institutions often look to credit card usage as a way to gauge a potential loan applicant’s creditworthiness, making your credit card important for a future loans or rental applications.
7. Member Perks
With some smart shopping, you can choose from a wide range of discounts or cash back based on your purchases. Compare the cards available to see which perks best fit your needs and spending habits.
8. EMI Facility
If you plan on making a large purchase and don’t want to sink your savings into it, you can choose to put it on your credit card as a way to defer payment. In addition to this, you can also choose to pay off your purchase in equated monthly installments, ensuring you aren’t paying a lump sum for it and denting your bank balance. Paying through EMI is cheaper than taking out a personal loan to pay for a purchase, such as a television or an expensive refrigerator.
9. Build a Good Credit History
Using a line of credit by making purchases and paying them off on time will help you get a good credit rating from credit rating agencies, which will make lenders more likely to lend to you and offer you a good interest rate.
10. Purchase Protection
Your credit card may step in to help if you want to dispute a charge or return a defective product. While a debit card may offer similar protection, you will have to wait until the issue is investigated before getting your money back.