In the year 2008, I had to take a course on Credit card and get certified on credit cards. I work in tech sector, but my project was on credit cards. So I had to know how the sector works. Over the year working with financial companies taught me How to use credit card, and I want to tell you few basic things today.
First of all consider credit card to be your friend. And if you choose your friend carefully it can be rewarding.
Why credit card is better than Debit card ?
- Credit cards offer you rewards, cash back or gift cards, most of debit card do not.
- Debit card directly transfers your own money to merchants account the commission they earn is little, so they cannot really return any reward to consumer. On the other hand, credit card charges fee to settle amounts, and they can return their part of profit to consumers in form of points / rewards.
- You get around 50 days to pay off the debt without paying any interest, assuming you are not taking cash advance. Debit card, if you are paying from an account that has some interest , you lose the interest.
- Credit card let’s you dispute any fraudulent activity, debit card does that too. But the amount to return to your account it takes a lot of time, with credit card, you get the disputed amount next day or sooner.
How to use credit card
Here are few do’s and don’ts and as long as you follow these credit card will remain your friend that wont stop giving.
- When you apply for card make sure your credit score is great and you are not going to get declined. IF your application is rejected, you take one unnecessary hit on your credit report. How do you know if your credit card application will get approved? Sign up for credit karma, it will show you ,your approval odds. Make sure you do not apply for a card with annual fee.
- Apply for a cashback or rewards credit card. And some cards have 5% cashback on grocery or 5% on online shopping period. Use those cards to maximize your cash back.
- Try to keep usage to minimum. Well, say your credit limit is $10000, try to keep your balance below $2000. Lower the your balance, that will make your credit score better.
- Just paying the minimum payment is not going to cut it. When I took my course, I learned that best consumer for credit card companies are those who just pay minimum balance. You end up paying a massive interest rate, may be 20% or more on the credit card loan.
- In case you are not being able to pay off balance, try balance transfer. There are cards those offer you 0% apr balance transfer for a year or so, that is enough interest free period to pay off credit card. But, you have to have credit score to be eligible.
- The points above are enough to tell you how to use credit card, but here is one bonus tip. Try checking your transaction details every couple of days. You never know when your credit card information gets stolen. If you cannot identify a transaction, you can dispute that online or by calling the bank.
So that’s How to use credit card ?
well, No. You are not supposed to be reckless with credit card. You need to practice self restraint. Use your credit card just instead of cash or debit card. Do not go on a shopping spree using your credit limit. So, try to pay off your balance in full every month. Develop a mentality, that credit card is an instrument to generate or get back portion of money that you spend, and stick to it.