A credit card is a convenient way to use credit to pay for items or services if you do not have funds immediately available. It is a secure method of payment with each type of card often offering additional perks, rewards and discounts for their use. It is important to know that the money spent with a credit card will need to be paid back, either in full all at once or in multiple monthly payments.
How to Make the Most of Your Credit Card
Using a credit card strategically can help you build the good credit you need to rent affordable housing, take out a mortgage, refinance, obtain an auto loan and even sign up for a phone or cable plan. There are many ways to utilize credit cards to improve your financial health or make large purchases over time.
Following tips for making the most out of your credit card can help you avoid debt and assist you with building a healthy credit history. When you own a credit card, make sure to pay your balance in full every month. If you cannot afford to pay your balance every month, then pay as much as you can.
If you have monthly or regular charges, then use your card to sign up for automatic payments. You can have your account set up to automatically withdraw money from your bank account each month so you never miss a payment. It is important to always make at least the minimum payment every month. Missing a credit card payment could result in a late penalty, higher interest rate and lower credit score. Additionally, you should keep your balance less than 30 percent of your credit card limit. Spending a higher percentage of your limit could have a negative impact on your credit score. When possible, be sure to take advantage of your credit card rewards and benefits. Avoid canceling your credit card, even if you do not use it often. Canceling a card can hurt your credit score, so it is generally unadvised to cancel a card unless it has a high fee.
The Types of Credit Cards
There are a number of different types of credit cards available, so it is important to understand the key differences in order to make an informed choice as to which kind of credit card is the best for you and your financial needs.
Standard credit cards will often offer a lower interest rate than other types of credit cards. Learn more about low-interest credit card if you are looking to reduce your debt over a period of six months to a year. While some interest rates remain low indefinitely, others may have a variable interest that starts low and then increases to a higher rate later. Rewards credit cards often advertise for cash back when you use your credit card.
Secured credit cards are an excellent option for individuals who do not have a credit history or those who have poor credit. Secured cards work similarly to debit cards in that you must deposit money upfront before you can utilize the account. Secured credit cards lower the risk to lenders and help you build good credit when you pay your balance in full and on time each month.
If you are a small business owner or have a career that requires frequent expenses, then a business credit card is an excellent option to allow you to clearly separate business and personal expenses. Some business cards also have benefits such as mile rewards, cash back and other business-related discounts.
Student credit cards usually have a lower limit and come with a lower interest rate. Some student cards also come with rewards such as discounts on school supplies, internet services or a cash back for higher GPAs. Student cards usually do not feature an annual fee and can be secured with little to no credit.
There are also special cards available that can save you money over time on purchases you make regularly or for being a member of a store rewards program or loyalty club. Cash back credit cards usually provide you with a way to earn benefits while encouraging you to make purchases. Rewards cards give you cash back on certain purchases. If you travel frequently, then you should consider a travel rewards card that features miles for purchases and cash back for hotel stays and rental cars.
Balance transfer cards can help you eliminate debt with very high-interest rates by opening a new credit card and moving your remaining balance to the new card. Often this kind of card will have a grace period in which you can make payments interest-free.
Credit Card Interest and Fees
If you are new to credit cards, then you may have questions about the interest rate that is associated with a credit card. An interest rate is a fee you pay for borrowing money from a lender. It is presented as a percentage and is added to your total balance. Interest rates can be as low as four percent and as high as 30 percent. When choosing a credit card it is imperative to consider the interest you will pay. Your credit score will influence the interest rate you receive on your credit card for most standard cards and rewards cards. Those with lower credit scores will often have a much higher interest rate in order to outweigh the risk of providing them credit. However, it is important to understand that you can avoid these fees. If you pay your entire balance within the card’s grace period, then you will not be charged an interest rate. Some cards only have grace periods for the first few months to a year of your account. You should inquire about your cards grace period before you open your account so that you can take advantage of this benefit.
In addition to interest rates, you should familiarize yourself with the other fees that you may come across when obtaining a credit card. Many providers will charge an annual fee just for having the credit card, even if you do not frequently use it. You would pay this fee once each year to the provider as long as you have the credit card open. Fees often are applied to the balance of your card or they go against the rewards that you have earned. Most credit cards offer a lower introductory annual fee for the first year, so be sure to ask a potential creditor about annual fees.