Editor’s note: Each week, one of Bankrate’s personal finance reporters is reporting on a new way to save and chronicling the savings journey. See how Jeanine controls spending and boosts her credit.
This will probably come as no surprise, but I’m a big fan of using a credit card as your primary payment method.
First off, they offer better fraud protections than cash or debit cards. They also offer a bunch of ancillary benefits — such as extended warranties, purchase protection and, more notably, rewards points — that can save you money over the long haul. Case in point: I recently put $120 worth of rewards points toward an upcoming vacation.
But how can you get these rewards and stay on top of your bills?
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Rewards and good credit?
Reaping these rewards hinges on paying off all — yes, every single one — of your purchases by a statement’s due date.
That way, “you get the benefit of earning rewards and enjoying the aggressive fraud protections without having to worry about interest or any negative impact to your credit scores,” says John Ulzheimer, formerly of FICO and Equifax.
Remember: Revolving a big balance negatively skews your credit utilization ratio — essentially how much debt you are carrying versus how much (collectively and on each individual credit card) has been extended to you. Amounts owed make up 30% of the popular FICO credit score.
To ensure I don’t rack up an uncontrollable balance, I utilize 1 very special trick: I pay my credit card bill at least once a week via a linked debit card account.
Doing so helps me stay on budget because it keeps me constantly abreast of how much money is in my bank account. I’ll skip over buying a new shirt, for instance, if I know I won’t have enough funds to cover the purchase by the end of the week.
It also allows me to monitor my statements for suspicious charges or spot inaccuracies. For instance, I recently spotted a double charge on my favorite credit card for a $40 purchase I had made the day before.
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What if you don’t use your cards much?
Even those who don’t use their credit card regularly should try to make multiple payments each month.
Doing so helps ensure that any big purchases you make don’t inadvertently get reported to the 3 major credit bureaus — Equifax, Experian and TransUnion — and wind up impacting that aforementioned credit utilization ratio.
“Credit card issuers update the balances on your credit reports only once per month. And, the balance they report to the credit bureaus is your most recent statement balance,” Ulzheimer says. “By paying the bill periodically throughout the month, you will minimize or even eliminate any balances showing up on your credit reports, and that’s great for your credit scores.”
A great credit score, of course, is important because it entitles you to cheaper rates on financing and even cellphone or insurance plans.
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Pay down debt faster
Those in credit card debt can save with this strategy, as well.
“If you have credit card debt, making a payment each week is a great way to pay it down more quickly and take back your financial life,” says Beverly Harzog, author of “The Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free.” “You’ll end up paying less in interest expense over the life of the debt. Compound interest adds up quickly, so a lower balance saves you money.”
You can link a debit card and credit card account fairly easily through most issuers’ online banking services. Make sure to use strong passwords to protect both accounts. Strong passwords contain at least 8 characters, 1 number, 1 symbol, a lowercase and an uppercase letter and even intentionally misspelled words.
While you’re logged in to your credit card account, you may also want to authorize an automatic minimum payment each month so you never inadvertently miss a billing cycle. A first missed payment can cause a credit score to drop 70 to 90 points, depending on where it is when the delinquency occurs.