There's been a healthy, ongoing debate about whether it's a good or bad thing to use credit cards to make purchases. On the one hand, if handled responsibly, having a credit card can be a convenient way to buy things without having to carry a lot cash on hand, establish credit, make reservations and more. Others might say credit cards aren't necessary and can lead to spending money one doesn't have and an insurmountable amount of debt. Either way, here are a few things you should know if you are looking into getting a credit card.
How to get a good interest rate
You want to pay close attention to your credit card's interest rate because this figure will dictate just how much your purchases made with your card are costing you. If you pay your balance in full every month, your interest rate isn't as important because you're only charged interest if you're carrying a balance from month to month. Even in that case, it's good to know exactly what your interest rate is.
If you know going in that you will most likely have a balance carry over, you'll want to find a card with the lowest interest rate possible. Shop around and pay attention not just to what a card's initial annual percentage rate (APR) is, but also what it may jump up to after six to 12 months.
A big factor in what your interest rate will be is your current credit score. Knowing what your credit score is going in to this process is important because it will give you a clearer picture of the type of interest rates you are eligible for. Once you know what your range is, you can see which cards and rates are a good fit for you.
The better your credit is, the lower your interest rate will be. Excellent credit could land you a 0% or single-digit promotional APR. After you have your credit score, comparison shop online to find the rate that is most affordable to you.
When to use a credit card
Once you have your credit card in hand, you may wonder when you should and shouldn't use it. Some people think credit cards are to be used for emergencies only. Others might suggest to use it for as much as you can, just make sure you pay your balance in full every month. The truth probably falls somewhere in between. Here are a thing you may want to consider using your credit for:
It probably seems irresponsible to borrow money to buy a big-screen TV or stereo system, but it's really on irresponsible to do if you don't have the money to pay for it. Using your credit card to buy an expensive item like a TV will most likely give you protection such as fraud and if some sort of error was made during the transaction, you can dispute it. If you were to use your debit card in that instance, your cash may be tied up until the dispute is settled, which wouldn't be the case if you paid with your credit card.
It's helpful to book your hotel rooms, airfare or rental car with your credit card. You could use your debit card too, but sometimes there'll be hold on your card or you might have to pay an extra deposit when you make the reservation. Paying with a credit card may also give you the option to add secondary travel insurance or extra travel rewards.
With fraud and identity theft all around us, it's important to have as much protection on your purchase as possible. Shopping online with your credit card will give you that protection and might also provide additional coverage in the event something is wrong with your order or the item itself when it arrives. When you do shop online, make sure the site is secure.
Make timely Payments
You've gotten the interest rate you were looking for and have started to make some purchases with your credit card. Now that first bill has come in; when it comes to that bill, there's one thing you need to know: pay it on time! That might be the most important piece of credit card advice you could get. Paying your credit card bill late can cause all kinds of problems.
For starters, the credit score you've worked so hard to build will go down. A lower credit score will affect your chances of securing a good interest rate on a car loan, mortgage and could even hurt your changes of getting a job. When you pay your credit card bill on time, your financial reputation becomes that much stronger.
Not only can paying your bill late hurt your credit, it can be expensive! Credit card companies will not hesitate to begin charging you late fees and penalties and raise your interest rates. It can also hurt your peace of mind; late payments lead to non-stop calls and letters from creditors. Before you know it, a majority of your time has been swallowed up dealing with credit card debt. Plus, you might lose out on any cash back rewards or other perks that come with your card as they are reserved for customers whose accounts are in good standing.
Paying Your Balance in Full
When you receive your aforementioned bill, you'll notice there are two different payment amounts: the total balance due and the minimum payment due. Paying the minimum will keep your account in good standing, but the remaining balance that carries into the next month will be charged interest. If it's at all possible pay your full balance every month. The longer you pay just the minimum, the longer it will take you to bring your credit card balance back down to zero. In fact, most credit card bills will show you just how long it will take you to pay your balance if you pay the minimum every month.