Using a credit card right is not just about having it and putting the occasional expense on it. You need a somewhat planned approach, and you have to keep a few things in mind if you don’t want to see a negative impact on your credit score in the long term. That’s right – using a credit card wrong can actually hurt your score instead of helping it! It’s not just about failing to keep up with your monthly payments. There’s more to it than that.
A credit card must be used actively in order to have the maximum possible positive impact on your situation. Your credit score takes your “credit utilization” into account for the main calculation. And considering that a credit card is essentially an open line of credit, you probably get where this is going.
Planned Monthly Expenses
Naturally, the best place to start are your planned, ongoing monthly expenses that you know and can rely on. As long as you think a few steps ahead, you should be able to create a system where a good number of those expenses are charged to your credit card, which you then pay off as normal at the end of the month.
This can not only give you more flexibility in your finances, it can also improve the rate of utilization of your card by a significant margin, putting you in a better position for any loans you might want to take out in the future. Talk to your regular stores as well. Some of them might have special programs for credit card users, especially major grocery store chains and similar places. You never know what kinds of bonuses you might be missing out on simply by choosing to pay in cash!
Emergency expenses are a good way to put your credit card to use. While they won’t happen often and can’t be accounted for, they can allow you to utilize your credit card to its full potential whenever you run into situations like that. Keep in mind that not all such expenses can be charged to a credit card, however.
For example, some hospital bills might require different forms of payment. You might still be able to make those through a middleman service, so look into what the market has to offer. Of course, be reasonable. You don’t want to end up paying a significant percentage of the original sum on top of it just because you’re going through a third party. A credit card isn’t always the ideal option, so study each situation carefully, and know what your money is being spent on exactly.
Trips and Special Occasions
Planning to go somewhere? This can be the perfect occasion to use a credit card as well. Charge the entire trip to the card, and even use it for purchases abroad. Just make sure that you follow the appropriate security guidelines of your issuer in order to avoid falling for scams and other types of fraud while you’re traveling.
It’s also a good idea to check if you have any cards with special travel-related bonuses. Sometimes, you might be able to get access to special lounges at airports, get priority at events, and other similar perks that aren’t possible without the right card.
If you have a major purchase coming up and you’ve planned for it appropriately, you can put that on your card as well. As long as you already have the money saved up and know you can pay off the bill at the end of the month, that’s all that matters. A big purchase on your card can be a particularly good boost to your credit score, and will look great in the eyes of lenders in the future.
This applies for things like home appliances and electronics, bicycles, and more. Of course, when it comes to something more major – like a car – you might be limited in your options and may want to talk to your bank first. But other than that, you should definitely take advantage of your card’s spending potential in those cases.
A credit card can either be a very useful tool in your personal finances, or it can cause a lot of trouble. It’s all up to how you use it. As with any other tool, it can be worthwhile to take some time to study how it works and know what to expect at each step. Otherwise, you’re just shooting blindly. And when it comes to something that can have such a major impact on your finances, that’s hardly ever a good idea.