Whether you’re ready to get your first credit card, or have had problems managing credit cards in the past, this article will explain how to best use your credit card(s) to reap benefits, avoid high fees, and improve your credit score. Used strategically, a credit card can be a convenient financial tool that also helps you maintain a good credit score and history.
Pay off your balance every month
This is the single most important thing you need to do to manage credit cards strategically. Don’t charge more than you can afford to pay off by the end of your billing cycle. Here’s why:
Most credit card terms include a grace period for purchases as long as you pay off your balance every month. If you start to carry a balance, you lose that grace period, including for new purchases made in the billing cycle. Then, interest usually accrues daily–more on that in the next section.
You can set up automatic payments to pay off your credit card balance every month. This is especially helpful if you’re prone to forgetting due dates. Stay on track by recording each credit card transaction in your budget as an expense tied to a certain category. This will help you allocate the money you need to pay off your balance.
Understand how interest is calculated
As we mentioned above, carrying a balance on your credit card means that interest starts to accrue on your average daily balance. When interest is charged after each statement due date, it becomes part of your balance and interest is charged on that balance (this is what compound interest means). With average credit card interest rates at 24% right now, you can see how carrying a credit card balance can quickly get out of control. This is especially true if you continue to use the card and make only minimum payments.
Track your purchases carefully
Convenience is a key credit card benefit, but it can also be a major drawback if you don’t carefully watch how and when you use it. Credit cards make it easy to pay for large purchases, but you need to be cognizant of your bank balance to ensure that you can actually afford the purchase before you make it. You don’t want to find yourself in a situation where you owe a large sum on your credit card balance and don’t have the money to pay if off.
Maximize your benefits
Many credit card providers offer various types of cards; some might have a lower APR in exchange for fewer benefits, while another card might offer cash back or travel rewards with a higher APR. Be sure to pay close attention to the benefits available to you and determine how you can use your card strategically to grow your cash back and maximize the rewards you receive.
Build your credit score
If you use your credit card correctly, it can be an invaluable tool to build and maintain your credit score over time. If you don’t have other types of debt such as auto loans, student loans, mortgages, etc., a credit card can be an effective way to grow your score, especially for younger people whose credit history is relatively short. By paying your balance off, making payments on time, staying below your credit limit, and even becoming an authorized user on other people’s cards, you can steadily build your credit.
Apply for a credit card!
As your community bank in Virginia and North Carolina, American National Bank offers a variety of credit card options, including premium credit cards and credit cards with rewards. Learn more and complete your credit card application here!