Understanding Credit Cards for Maximum Profit

Credit cards can be confusing, and using them wrong can get you in trouble fast. However, if you take the time to learn about how they work, you can use them to build credit, enjoy rewards, and more!

How to Use Credit Cards to Built Credit

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Shutterstock ID: 256833124

Somehow, many people believe that using credit cards is a bad thing, and it can be if you do it wrong. However, using a credit card the right way will only result in building credit and receiving rewards. The most important rules are to keep your balance below 30% of your available credit, pay your bill on time and in full every month, and pay more than the required minimum.

Even if you have enough money in your other accounts, using your credit card and paying it off boosts your credit score. It can be good practice to put aside the amount you spend on your credit card to pay it off at the end of the month. Using your credit card rather than a debit card will give you more benefits and improve your credit score.

A good credit score can help you make significant purchases, including vehicle and real estate purchases in the future. Since it takes time to build credit, it is never too early to start. One final tip on using your credit card is monitoring your account weekly to catch any forgotten purchases and protect yourself from fraud.


How to Pick the Right Credit Card

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Applying for a credit card can make your credit slip temporarily, so it is essential to pick the right credit card to apply for. Before applying, check if there are any requirements and make sure you have good odds of getting accepted. Chase, for example, has a rumored 5/24 rule, although it isn’t formally stated on their website.

This 5/24 rule means that you can’t get approved for most Chase cards if you’ve opened five or more personal credit cards in the past 24 months. This is just a rumored rule, and every bank is different, but it is vital to keep track of how many credit cards you have and how many you have applied for.

When picking a new credit card to apply for, do some research to make sure you will get approved. But also, check if the benefits offered will work for you. Chase, for example, has an excellent travel credit card, so if you travel a lot, it may be the perfect option for you. Some credit cards will give you points for travel, others for dining, some for online shopping.

Plus, the rewards are different on every card. Some will give you money to spend as you like. Others will offer discounts on specific purchases or reward you in airline miles, etc. Think about your long-term goals and pick a credit card that will help you achieve them.


Do Not Cancel Unused Cards

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If you opened a credit card for a specific purpose and no longer need it, don’t rush to cancel it. Two of the many factors that affect your credit score are the length of your credit history and credit card utilization. It is good to have credit cards for a long time and use them consistently.

As I mentioned before, even if you don’t need it to make a purchase, use it anyway and pay it off right away or at the end of the month. Plus, depending on the rewards you get, it is a fantastic idea to use the credit card on things that will gain you rewards, even if you don’t need to. It can take some time to get used to which card to use for what, but once you do, you’ll be racking in the rewards!


Avoid Temptation to Live Beyond Your Means

Credit cards can be a good backup if you unexpectedly run out of money and need them to buy something you absolutely can’t live without. For example, I got my first credit card to buy a laptop I needed for work when mine stopped working. I had to plan to pay it off because a credit card isn’t free money.

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Shutterstock ID: 763372078

Maxing out a credit card can negatively impact your credit score. Unfortunately, it can be tempting to use your credit card on things you want or need and worry about dealing with it later. However, the rule of thumb is not to use your credit card on anything you can’t afford to pay off right away.

With these few tips, you can feel confident using your credit card to grow your credit score and enjoy the rewards. Don’t put off getting a credit card or using it to your advantage. It can be intimidating to get started, but following a few simple practices can benefit you in the long run!

Photo: Shutterstock.com

Another great article here:

Five Finance Tips You Should Consider in Your Youth to Protect Yourself in the Future


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