When someone brings up credit cards, many Americans tense up. A long, storied relationship with credit cards plagues many Americans, and many will be riddled with anxiety with just the mention. Perhaps it brings to mind their mountain of credit card debt.
For the past decade or two, Americans depended greatly on credit cards to make their wildest dreams come true. The tricky part is many didn’t factor in high interest rates when they decided to “charge it.”
For this reason, many Americans are cutting up the credit cards in favor of a cash only lifestyle. While that isn’t a bad way to go, credit cards aren’t all that bad.
So why use credit cards at all? Credit cards are a great way for people to earn credit. Credit is your financial history that lenders look at to determine if they should lend money to you. A good credit rating results in lower payments, minimum interest charges and more financial freedom to purchase big ticket items such as a car or a house. No credit will result in banks giving you a high interest rating or no loan at all.
If you are using your credit card to get a good credit score, you have to follow some simple rules. First, all payments must be paid monthly in full. This increases your score because it shows you can pay back loans efficiently, plus it removes any unnecessary interest fees. Next, you should never max out your credit cards. Even if you pay it off every month, it affects your credit score negatively. Some financial advisers recommend never charging more than 30 percent of your available balance.
Third, be careful how many cards you open and cancel. Applying for many loans or credit cards looks poorly to the credit bureaus. It also is negative to apply for cards and then quickly cancel. Think twice before signing up for a store’s charge card for a minimal discount.
Another great benefit for smart credit card holders is rewards. Rewards cards reward you for spending. Each card has a different payout but some offer flight mileage or cash back. Figure out which reward works best for you, and sign up to start reaping the yearly rewards. Beware: rewards cards might have annual fees, and most always have high interest fees. Some sky rocket up to 20%. Rewards credit cards are only smart for those who pay off their cards in full every month.
Credit cards are ideal for people who have financial restraint. Those who fall into the credit card trap spend more than they are able to afford. Smart credit card spenders will only charge what they can pay off at the end of the month. This type of spending will reap rewards with higher credit scores and credit card benefits.
If you can’t handle the temptation of charging it, leave the credit card at home. Use it for emergencies only. You will thank yourself later.