Did you know that the average household in the United States owes approximately $6,913 on their credit card? Credit cards can be a useful financial tool and can provide several advantages, such as helping you build your credit and providing you with special incentive rewards like airline miles. However, credit cards can also lead to financial burdens if not used cautiously. Learn how to get the greatest financial benefit from your credit card with this detailed, step-by-step guide!
Types of credit cards
Credit cards are issued by banks, stores, airlines, and other financial institutions to help their customers make purchases online and in person. It’s also a great payment method if you’re seeking to pay an item in monthly installments. However, it’s important to note that not all credit cards are created equally. Continue reading to explore the different types of credit card options available to you and see which one best suits your financial needs.
Unsecured credit card
Unsecured credit cards are the most common type of credit card. These types of credit cards mean that the amount loaned on the card (credit limit) is not secured by any type of collateral (or deposit) from you. These are great cards to consider when building your credit.
Secured credit card
Secured credit cards are a great option for individuals with little to no credit history. With a secured credit card, a customer’s credit limit is determined by the security deposit they make on the card. For example, for a $300 credit limit, the customer must pay an upfront deposit of $300 on their secured credit card. The goal for this type of card is to make smaller purchases and show the bank or financial institution that you can make monthly payments on time.
Store credit cards
Store credit cards are lines of credit distributed by a specific retail store and its partnering bank. Like a standard unsecured credit card, the amount you spend will need to be repaid in a fixed time period. The only difference between store credit cards and traditional credit cards is that store credit cards can only be used within specific or designated stores. Most store credit cards don’t have annual fees, so they can be a more affordable option to help build your credit.
Balance transfer credit cards
A balance transfer credit card allows you to pay off debt on another credit card. This is done by transferring the total balance owed from one credit card to the new credit card. Balance transfer cards allow you to save interest on an existing credit card through a temporary, 0% APR offer. However, the goal is to pay off all remaining debt on the credit card transfer before the APR offer expires.
Virtual credit cards
Virtual credit cards are extensions of your main credit card and are meant to secure your personal card information. They are unique numbers created by your financial institution to use when making online purchases, meaning that they can only be used once. Every time you make a new purchase, a new set of numbers will be created for that unique payment.
Rewards credit cards
Rewards credit cards work just like a standard, unsecured credit card, however, they provide customers with credit or points for everyday purchases, such as groceries or gas. When a customer accumulates a specific number of points on their rewards credit card, they can redeem them towards cash credit, airline miles, or even gift cards. However, keep in mind that some of these credit cards are subject to an annual fee.
10 tips for successful credit card use
Are you ready for credit card success? If so, then follow some of the tips we have listed below to enjoy the advantages of your credit card!
1. Know your credit score
The credit card you are approved for will depend on your current credit score. Credit scores can range anywhere from 300 to 850 points and are used to determine several credit card factors, such as qualifying for a line of credit, how large of a credit line you have access to and your terms of use. Here’s how different scores can be affected:
- 300 to 580 - Very difficult to qualify for a credit
- 581 to 650 - Will typically qualify for credit at high-interest rates
- 651 to 710 - Will qualify for credit at moderate rates
- 711 to 750 - Will qualify for credit at very competitive rates
- 751+ - Will have access to the best credit rates in the market
Knowing your credit score can help you predict what type of credit card you can apply for and the type of interest you’ll have to pay. Typically, those with higher credit scores pay the lowest interest rates. Get access to your free credit report once a year by visiting this website here.
2. Read your contract
It’s important to carefully read the entire contract before you sign. The advertised low-interest rates may not last as long as you think, or you may not have a grace period for balances transferred from other credit cards. It’s better to be aware of all the provisions of the agreement so that you know all your rights and obligations.
3. Pay on time
Keep an eye out for your credit card payment dates, which are usually once a month. Remember that as long as you pay off your balance amount in full, you won’t be charged any interest. However, if you pay on time, but don't pay off your complete balance, the bank will charge additional interest on your account.
4. Pay your balance in full
The best thing you can do is pay off your card balance every month and not build unnecessary interest. If you are unable to pay your complete balance, try to pay more than the minimum amount so that you can pay off your credit card faster. Also, make sure to never exceed the credit limit.
5. Choose how much to spend wisely
Be sure that the amount you spend on your credit card suits your financial situation and credit score goals. To develop a good credit score, you have to comply with the important indicators that credit reporting agencies look at. Most of these agencies advise using approximately 35% of your line of credit. For example, if your line of credit is $1,000, and you spend $900 every month, you’ll always be close to your credit limit and this can impact your score negatively. On the other hand, if you spend $300 each month with the same line of credit, the reporting agencies will see that you are making good use of your credit.
Keep in mind: If you have several credit cards, it’s always better to divide out your expenses between them so none are left unused and your credit usage doesn’t exceed 35% on each card.
See how to get a good credit score
6. Be a smart buyer
One of the advantages of paying with a credit card is that those transactions are more secure and have additional protection that other payment methods may not. With this in mind, it’s recommended to use your credit card for most of your expenses. Consider using your credit cards for everyday expenses such as groceries, gas or eating at restaurants. That being said, you should avoid making impulsive purchases that exceed your credit card budget. Always use your card to make purchases that you can afford.
7. Avoid adding unnecessary debt
Balance transfer credit cards with promotional 0% annual percentage rates (APR) can be helpful to help pay off old debt. However, it’s important to always know the duration of the promotion period and pay off the balance before that date. Be sure to always read the fine print and avoid building unnecessary credit card interest.
8. Protect your card numbers
Never share your credit card information or account number with anyone. It’s important to keep your card protected and avoid any unauthorized use.
9. Keep a record of your accounts
Keep a record of your credit card account numbers, expiration dates, and customer service phone numbers in a safe place. While we hope that you never have to report an incident, it’s helpful to have this information on hand in the case you need to quickly report a missing card, unauthorized purchase, or theft.
10. Don't carry all of your cards at once
It’s not recommended to carry every single credit card with you whenever you go out. Just take the card or cards you know you’ll use before leaving the house. This will help you avoid impulse purchases and help prevent card loss or theft. The less you expose your credit cards, the more financially protected you’ll be.
Credit cards can bring you many benefits and should always be used responsibly. The more you understand about the type of credit card you apply for and its terms of use, the better prepared you’ll be to build your credit score and reach your financial goals.
