Credit cards are a valuable resource, offering responsible spenders vast rewards, including funds for emergencies, travel points, and cash back. When used wisely, credit cards can also boost your credit score and help keep your finances on track.
Here are three things to make sure your credit card works for you:
Understand the basics
A credit card is a line of credit used to make purchases and pay the bill later, unlike a debit card which is used to deduct funds directly from your checking account at the time of purchase.
Credit cards can be valuable financial tools that help the card user earn rewards, minimize cash transactions, build credit, and better protect against fraud. However, if not used wisely, individuals can get into debt by spending too much and making purchases they cannot afford.
Accumulating credit card debt can quickly become overwhelming, as some cards charge high interest rates on borrowed money, some as high as 22%.
You can apply for a credit card online, at a bank, by phone or by mail. The card issuer will use your social security number to verify your credit score when you apply. Your credit score will then determine whether you qualify for a line of credit, as well as the credit limit you qualify for.
A credit card limit is the total amount you can charge a card at a time. A good credit rating generally allows for a credit limit ranging from $1,000 to $20,000.
Once you start using your credit card, your monthly payments will begin. Although you can always pay off the full card balance to avoid interest, you must pay the minimum each month. You need to pay on time or you could face late fees and penalties that will negatively impact your credit score.
Benefits of using a credit card
Spending money with your credit card and making payments on time is a great way to build your credit score. A good credit rating allows you to make larger purchases, such as taking out a loan for a home or a vehicle, because you are considered creditworthy.
While it can be dangerous to make purchases you can’t afford, it’s useful to have a credit card for emergencies like car services, home repairs, or unexpected medical bills. Individuals can enjoy paying for something they need now and paying the bill later instead of using a debit card and facing overdraft fees – or not being able to pay that bill emergency.
While financial institutions offer various credit card benefits, CommunityAmerica offers a variety of rewards such as cash back, travel points, merchandise rewards, and gift cards.
Credit Barding Best Practices
Healthy credit habits can save you money and stress later. Always make minimum payments to avoid penalties, fees and accrued interest. Making more than your minimum payment will save you money on interest, improve your credit score, and shorten the duration of your payments.
Research your options if you’re considering opening your very first credit card. Many banks and credit unions offer first-card benefits such as lower interest rates and no annual fees. During your first few months, use your credit card for things that are easy to track and factor into your monthly budget, like gas and groceries. This will help you get an idea of how your new line of credit will be used.
You need to understand the interest rate on your credit card as it will affect your monthly payments if you don’t pay your balance in full. This additional cost can make a significant difference in what your borrowed money will cost you.
Continually educate yourself on credit card best practices to help you make informed and thoughtful decisions about your credit. Always stay on top of your payments and monitor your credit score to make sure you’re using your card in a way that truly benefits you and your financial goals.
Let’s Talk Money is powered by CommunityAmerica Credit Union. This week’s article is hosted by Janelle Holland, Financial Wellness Coach.
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