Three Tips For Properly Using A Credit Card

Contrary to popular belief, credit cards can be a great way to make purchases, but only if you use them properly. That means you pay off the balance in full on time every month. You also have to be very familiar with the specific terms and conditions of your credit card. This can be challenging since financial agreements can be long, complex and hard to understand. It is critical for a cardholder to know three things before using the credit card:

It's Credit, Not Cash

The vast majority of cardholders forget their credit card is actually credit, not cash. This means the money technically isn't yours to spend with no responsibility or consequences attached to it. In fact, it is imperative to see your credit card as money that is being loaned to you that needs to be paid back as soon as possible.  Although there isn't an actual "due in full" date for your credit card, remember that you will have to make at least the minimum payment each month.  If you fail to make that minimum payment, you'll not only hurt your credit but you'll also incur extra interest expenses and late fees that can add up very quickly. Carrying a balance on your credit card and only making the minimum payment will result in significant interest penalties that will accrue for years to come. The best advice is to only charge what you can afford to pay off completely at the end of the month.

Know All Your Numbers

Be familiar with all the various rates and fees associated with your card. Make sure you know what the fee is for:

  • Cash Advances
  • Balance Transfers
  • Late Payments
  • Interest Rate or APR
  • ATM Fees
  • International Usage Fees
  • Grace Period

These numbers can be fixed fees or a percentage depending on your credit card. Be sure to check the fine print to understand these fees before using your card.

Credit Is More Important Than You Think

Finally, never underestimate the power of credit. If you use your credit card irresponsibly and ruin your credit profile, you will find yourself in debt and with a lower credit score which could have an impact on other aspects of your life. For example, did you know insurance rates are in part based on your credit score? So are mortgage rates, car loans and credit card rates. It's much faster and easier to ruin your credit profile than it is to fix it--it can take years to repair poor credit and that can cost you thousands of extra dollars over the years.

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