Credit cards can be a valuable tool for building credit or an ominous, one-way street towards long-lasting debt. It all depends on how you use them.
Instead of seeing your credit cards as bad omens, start taking advantage of the ways in which they can improve your financial health, whether you want to increase your credit score or save a few bucks on your purchases.
Here are some easy tricks you can pull today to make your credit cards work better for you, and start earning some sweet treats.
Trick: Pay your balances in full each month
The key to using your credit cards as helpful financial tools instead of haunted messengers of high-interest debt is simple: Pay off any balances you rack up.
Use your credit card the same way you would use a debit card; don’t spend more than you have available in the bank and can pay off each month. Instead of using your card with the expectation of carrying a balance and accruing interest, make it work for you. You’ll save money and earn rewards without the strings attached.
Trick: Keep your credit utilization low
If you can pull off this trick with your credit card, you can boost your credit score and keep enjoying the benefits far into the future.
Credit utilization is the amount of revolving credit you use in relation to the amount you have available, both on individual cards and on all open accounts. Experts recommend keeping your utilization ratio under 30 percent. If you’re really working to improve your credit, aim for 10 percent or lower. In other words, if you own one credit card with a $5,000 limit, try to keep your monthly spending under $500.
FICO counts credit utilization as 30 percent of your overall score. Keep your utilization in check and you can be on your way to reaping the benefits of great credit, like low interest rates and seamless application approvals, in no time.
Trick: Pay down debt with zero percent introductory offers
If you got into a sticky situation long ago and now find yourself haunted by the ghosts of credit card balances past, one of the most effective tricks for quickly wiping it out is brewing up a balance transfer.
Open a credit card that offers an introductory zero percent interest rate on balance transfers for a designated time period. Currently, the longest introductory balance transfer offer is 21 months with the Citi Simplicity® Card (then 16.49 – 26.49 percent variable APR after the intro period ends), but you can find many balance transfer credit cards offering 12-, 15- and 18-month introductory interest-free periods.
Do the math before applying to figure out if you’ll be able to pay off your balance in full before the end of the introductory period while also taking any balance transfer fees into account.
For instance, look into your crystal ball and imagine you initiate a balance transfer of your $5,000 balance onto the Capital One® Quicksilver® Cash Rewards Credit Card, which offers a 15-month introductory zero percent APR for a 3 percent fee (15.74% – 25.74% variable APR thereafter). In order to pay off your balance and the fee (in this example, $150) within that 15-month period, you need to make monthly payments of at least $343.33.
Find a card with an introductory period and terms that are feasible for your budget and send your credit card debt to the grave.
Trick: Eliminate fees
You can slash through interest payments by paying off your balances, but credit cards often have other fees that can spook you.
Look over your spending and make sure you’re not being charged fees that may be easily avoidable. Many cards have a range of fees you may not be aware of, from foreign transaction fees to cash advance fees, late payment fees and overlimit fees. Become familiar with the fine print of your user agreement so you know exactly what actions trigger these fees and how to avoid doing so.
One of the most common (and potentially expensive) fees is your annual fee. If your card charges an annual fee, you’re probably already aware. But you should take some time each year to reevaluate the value you’re getting out of your card to ensure that your rewards earnings outweigh the cost of the annual fee. If not, consider asking your issuer to downgrade to a card with no annual fee.
Trick: Earn great rewards
To really master your credit cards, use them to maximize rewards on all of your spending.
After you’ve paid down your balances and grown accustomed to only spending as much as you can afford so you don’t (Ghost)bust your budget, start using credit cards with rewards that align with your everyday expenses and long-term goals.
For example, let’s say you already have a credit card that rewards your spending on gas and at supermarkets like the Blue Cash Preferred® Card from American Express. But over the next year, you know you’re going to be doing much more traveling. Instead of using that card, which won’t earn you extra rewards on flights or hotels, pair it with a travel rewards card like the Chase Sapphire Preferred® Card, which will earn 2X points on dining and travel purchases. If you’re able to keep track of your spending and budget, combining cards with complementary rewards can yield even more benefits for your spending.
And once you’ve earned your rewards, don’t forget to redeem them. Enjoy the treats you accumulate before they expire.
Trick: Maximize your extra benefits
Beyond your cash back or points rewards, you should also make sure you’re maximizing each card’s extra benefits.
Many cards, especially those with annual fees and premium rewards, offer added benefits for cardholders. These can range from purchase protections and car rental insurance to airport lounge access and statement credits for specific purchases. Look closely at your
spell book user agreement and ensure you’re taking advantage of the extra benefits that can quickly wipe out your annual fee cost.