Interestingly, we can look way back to 1887 to a book called Looking Backward to read the first mention of a “credit card.” It was Edward Bellamy who used this term in his utopian novel to describe a card with a citizen’s dividend attached to it. This dividend was from the government in this book’s fictional world.
In the real world, we use credit cards as a convenient way to purchase goods or services through a debt mechanism offered by creditors. And, if you play your cards right, you can reap fantastic benefits by using credit.
But what are the best ways to use a credit card? Well, in this in-depth guide, we’ll run you through the various ways you can benefit from using a credit card. In the end, you should see your access to credit as a tool to help you achieve your goals and aspirations.
We know you’re eager to start spending! But, before you do, please read on and learn the following tips.
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Opt-in for Balance Alerts
Whether it’s the first time you’re using a credit card or if you’ve had one for a while, there’s one common issue many of us face. That issue is that when you spend with a card you can lose track of how much you’ve spent.
With cash, you can see it in physical form and you know pretty much exactly how much you spend. So you have to learn how to use a credit card without going over the top with your spending.
To spend responsibly with a credit card, one way of keeping track is by opting in for balance alerts from your creditor. Most credit card companies should offer this service. Others may even let you log into an app and see your credit card information and how much you’ve spent too.
You may also be able to opt for alerts letting you know when you are approaching a particular spending limit you want to set. For example, you could set a balance alert that tells you you’re approaching the $1000 mark every month. Some apps may also let you set an alert that lets you know when you are approaching 25% or more of your credit limit.
Budget With Spending Analysis Tools
Along with balance alerts, your credit card company might offer you spending analysis tools to help you budget effectively. After all, your credit card company doesn’t really want you to mismanage your credit card. Plus, creditors are competitive, so providing you with such tools can give them a competitive edge.
So in most cases, all you’ll do is log into an app that your creditors provide. Then you choose a date range where you want to analyze your previous spending. Then the spending tool will show you what your spending habits have been over that particular period.
By looking at your spending habits, you can notice areas of spending that could be terribly wasteful. For instance, the spending tool might reveal that you’ve been buying too many Green Tea Crème Frappuccinos, and you could think I’ll switch those out for regular coffees to spend less each month.
The more knowledge you have about your spending habits, the more capable you’ll be to correct them. And if you’re wondering what general categories these tools tend to show, they’re often ones like:
- Gas station spending
- Supermarket spending
- Online shopping
- Restaurant spending
- Department store spending
These are just a few categories you might be able to analyze. These tools can also allow you to customize your categories and much more. But whatever the case, these sorts of tools are a great help for setting your monthly budget.
Build Credit With Midcycle Payments
One important aspect of credits cards that you should know about is your credit utilization ratio. This is the current balance that you owe divided by your credit limit. And just so you know, your credit utilization ratio plays a major part in your FICO score (a whopping 30%).
So an example of this ratio is to imagine you have a $10,000 credit limit and the balance you owe is $2,000. In this case, your credit utilization ratio will be 20%. The tip you should take note of right now is to try and keep this ratio below 30% (the lower the better).
Now, what’s all this got to do with midcycle payments? Well, different creditors will send your balance info to the main credit bureaus at different times. Often, they won’t send your info right after your due date.
Therefore, it’s a good idea to get into the habit of making midcycle payments, or even weekly payments if you feel you can manage it. By doing this, you’ll ensure that your credit score is more often up-to-date than not.
Another way to approach this issue of credit boosting is to contact your creditors. Ask them, when you send my info off to the credit bureaus?
If they are a pretty transparent service, then they will tell you, as they will understand your reasoning behind the request. Then, once you gain this information, you can plan when to make payments before they send you the info.
Finally, one last point we’d like to make is that if you get into the habit of midcycle payments, you can save more on interest. The reason for this is that creditors work out your interest payment from the average daily balance you have, which you’ll reduce with midcycle payments.
Make Use of Bonus Malls
Some of the best credit cards will give you an excellent bonus mall option to use. But, what is a bonus mall?
Put simply, it’s a selection of online stores that are partnered with your creditors to give you bonus points for future spending. Some creditors will even offer you cash back credit cards that work on a similar basis, but instead of getting points back from specific online shops, you’ll get cash back!
In fact, you may be able to get as much as 10% on certain purchases. Although, the average cashback amounts are often around 1-2% of the purchase price of any item. Other times, there may be a flat-rate cash back amount for most purchases in a particular store too.
However, we must say that some card issuers are now opting to use card-linked offers rather than bonus malls. Card-linked offers are similar to bonus malls, but they tend to be limited offers for specific online retailers. Furthermore, you will have to search for such offers on your app and opt in to redeem them.
Thus, before you go ahead and sign up for the first credit card that takes your fancy, make sure to do some research about bonus malls and card-linked offers.
Set Your Due Date Accordingly
Did you know that your payment history contributes to 35% of your FICO score? What we’re specifically talking about here is whether you make your payments on time or not.
So it’s important to ensure you make the minimum payment on your balance every time before, or on, your due date. One way to make sure you do this is to set your due date to a time that suits your needs best.
For instance, one of the worst-case scenarios could be for your due date to be right before payday. If this is the case, you ought to ask to move your due date to your payday, or a day or two later. This way, you’ll know you have the funds to pay off your balance in time.
Most credit card companies will now let you change the due date online. Or the other option is to call them up to change it.
Set Up Strategic Card Combos
Many savvy credit cardholders choose to have more than one credit card that they use. The reason for this is that you can particular benefits from one card with certain spending patterns and different benefits from others.
You see, there are often two types of reward cards on the market that you can opt for. The first is a “flat rate” card which pays you the same reward for every purchase. While the other card type will offer you a lower base rate and bonus rewards for purchases that fall into particular categories.
So it makes sense to have a credit card for general use. Then, you can have another card that gives you the lower base rate and bonus rewards for some of your more common purchases in particular categories.
Get a Credit Card Made for Your Demographic
Your age is one of the key demographics that you can take advantage of when choosing a credit card. For example, there’ll be specific cards out there for retirees that have way more benefits than standard credit cards.
As well, if you are under 30, finding the best credit cards for your needs should be a priority. There are many credit cards now that will cater to your needs in this age category and help you to develop an excellent credit score.
Maintain Low Balances
We have to stress that the main reason you should be using a credit card is to build a good credit score. When you have a favorable credit score, you then open yourself up to getting things like mortgages and business loans.
So one of the easiest ways you can develop a decent credit score is to maintain low balances over months and years. This way, you don’t have large payback burdens to deal with. You’ll be using your card as a tool, rather than an instrument to conveniently buy things.
If you do, however, want a card to buy things with ease, just have the one where you might run up higher balances. Then have any other cards you have ticking over with low balances and low payment requirements.
Pay More Than the Minimum
If you can pay more than the minimum amount due, then do so. Why? It’s a great way to reduce the amount of interest you have to pay each month.
Interest over a few months might not look like so much. But add up that interest over a five or ten-year period, and you’ll realize that trying to lower your monthly rates is a good idea.
Keep an Eye on Your Balance Statements
It may be tempting to do a quick browse of your credit card statement once a month and then put it aside. But we advise that you look at your statements with a little more scrutiny.
Try to set aside 15-20 minutes of your time to look through all your purchases. You should be looking for any fraudulent activity that can happen with your credit cards. Also, check to see if any duplicate elements are showing up on your statement.
Don’t think that your credit card issuer will always get your statements correct. And the reason why you need to check the things we mentioned above is that such errors can affect your credit score with considerable impact if left unscrutinized.
Keep an Emergency Credit Card
A lot of people keep an emergency credit card these days. Even if you don’t ever use it, it can still contribute to a better overall credit score.
The reason why it can help you build credit is that the credit bureaus take account of your oldest card when calculating your credit score. The longer you’ve had a credit card, the higher your score might be. Although, we do advise you to use the emergency card once in a blue moon so it remains active.
Here is some more info on how to dispute credit card charges.
The Best Ways to Use a Credit Card Explained
We have now run through some of the best ways to use a credit card. We have also explained how you can make use of multiple credit cards in different ways.
So thanks for checking this post out, and good luck finding the right credit set up for you! We’d also like to invite you to check out more posts on our blog for tips and advice.