Quick and Wise Guide on Using Credit Cards

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Quick and Wise Guide on Using Credit Cards

Despite how negative the image can be, owning a credit card can be a lifeline for many people. For starters, it shows they have the financial capability to borrow money and pay it back. Yet, it’s also very easy to use and end up in massive debt.

How a Credit Card Can Help You

1. Easy to Use

Most merchants already take credit cards as a payment option. You just need to input the PIN number or even tap the card directly. Direct link to a digital wallet also means you don’t have to carry the card anywhere and pay from your phone.

Another usage is to withdraw cash from an ATM. However, you can only take 40% of the remaining balance on your card. Cashing out the balance also incurs additional fees and interest that are different from regular usage.

2. Massive Boost on Credit Score

Right after you receive the card in the mail, you’re building your credit score. The more you use the card and pay it back in time, the more your score will grow along the way. Naturally, if you’re late on paying or even in arrears, it will reflect badly on your credit score.

3. Fraud and Scam

Credit card users are susceptible to various frauds and scams, most commonly a social engineering one. A scammer will send you a fake link to take your card information to use and force you to pay the bill.

You can always set up multiple authorizations to prevent this from happening. The bank will send you notifications whenever there are any transactions. Another thing you can do is to keep the card information private and be careful when using it for online shopping.

Keys to Using the Card

1. Set a Lower Limit

Each card carries a different limit that you must adhere to. And even though you can use the whole limit, it’ll be much better and wiser to set a lower cap, somewhere between 40-80% from the maximum amount. It should be enough to cover your expenses and not burden your finances at a later date.

2. Watch For The Interest Rate and Other Fees

Banks often put numerous promotions to encourage you to use the credit card. Zero interest for installments, to a smaller fee for purchases above a specific amount. These look good on paper, but you have to be smart and calculate whether it’s worth the extra fee or not.

4. Never Pay the Minimum

First-time card owners often think that paying the minimum is already good enough. It’s better than paying it late, but it also means you’re only paying for the interest. Pay more than the minimum to get a better balance, or even pay off the entire loan when you can.

Owning and using a credit card sure sounds like a lot of fun, as long as you can keep paying it off on time. Yet, keep in mind that it requires a large responsibility, so you need to balance between wise and fun.

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