Updated: Nov 15, 2021
An important part of building your credit score is to actually use credit cards. But you have to make sure that you are using credit cards properly to get the most out of them. Here are the top 5 things we think that you need to know about using credit cards:
Credit is not free money. This is the number one rule that everyone should understand before opening their first credit card. Though it seems intuitive, our behavior often goes against this concept. Think about a time when you had to make a big purchase. Did you ever think to yourself, “I’ll charge it and just pay for it later,” without having an actual plan? Don’t worry, it happens to all of us. Just try to keep the bigger picture in mind when using credit cards.
Don’t be fooled by rewards offers. Have you ever seen a promotion for a credit card offering 50,000 points just for signing up? If the offer sounds too good to be true, it probably is. Sign-up bonuses like this usually require you to spend a certain amount within the first 3 months of opening the account—sometimes up to $3,000! Did you know, bonus points are generally only worth about a penny? That makes 50,000 points worth about $500. Before opening a credit card with a special bonus like this, make sure to look at your spending habits. Do you usually have $1,000 of expenses each month? You wouldn’t want to start overspending just to earn the rewards. That could lead to some serious financial trouble!
Watch out for interest rates and hidden fees. Other important things to look out for when opening a credit card are the interest rate and any fees associated with the account. Always read the fine print. Interest rates on credit cards are high—no matter how you cut it. Even with excellent credit, if you carry a balance from month to month, you’ll have to pay an extra 10%+ on top of what you owe. Also, did you know there is such a thing as a penalty APR? This is an interest rate in the event you start missing payments and it's EVEN HIGHER than what you already pay?
Pay your balance in full each month. This is key to getting the most out of your card. If you leave a balance on your card month to month, you’ll start to accrue interest. Think about putting purchases that are short-lived (like a restaurant meal or drinks at the bar) on your credit card. Imagine paying for that one meal or bar tab several months later? *Shudders*. Not to mention, if you are accruing interest on that purchase, it’ll cost you even more than it should have.
Make sure you redeem your rewards. So, you’ve followed all of the advice we’ve given you. You found a card that works for you, you’re using the card, paying it off—in full—each month, and earning points or cash back on your purchases. Go you! But, sometimes the process to actually redeem those benefits can be confusing. Be sure to fully understand when and how you redeem your points or cash back to ensure that they don’t go to waste!
Got any other credit card tips? We want to hear them! Let us know at email@example.com and we may feature you on our social media pages.
Have a great day! Your Friends @ Julep