A colleague of mine once said, “I don’t use credit cards because I’m scared to use one and I don’t know how to manage them.” There is a common misconception that credit cards easily lead to financial trouble. Although you can get into deep water, it will only happen if you are using them incorrectly. Credit cards shouldn’t be intimidating to use because they can give you many perks and benefits.
I will be going over the ways you can effectively use credit cards to their maximum potential. I would like to advise you that I’m not a financial advisor. Please consult with a professional for any financial decision, or do your research.
Credit cards are given to you by a financial institution, bank or retail store to lend you money to make the purchase. To receive one, you must apply for their credit card and they will evaluate you based on your credit score.
A credit score determines how likely you are to pay the money back that you owe to a company on time. It is important to have a good credit score because it can help you qualify for lower interest rates if you want to buy a house or a car. Even when you are applying for a job, employers can check your credit report to see whether you are financially responsible. Most importantly, if you are looking for an apartment, the landlord does check your credit score to assess whether you can pay their rent.
To track your credit score, you can use credit-building services like Credit Karma, Experian Boost or Credit Wise. Using these free services can help you track your progress and guide you to improve your credit. If you want the best low interest rates, you need an excellent credit score of 760 or above.
To boost your credit score, you need to pay your statement balance on time and in full. Paying minimum payments or late payments can result in your credit score dropping. For every credit card you own, the maximum amount you should spend is 30 percent of your credit limit. If your credit limit is $500, you can spend $150 on that credit card. By keeping your utilization under 30 percent, it will show you’re using your credit card responsibly. Spending too much can make you look risky for the banks to lend you money and your credit score will drop. So it is crucial not to overspend on your credit card. Lastly, never close any credit card account, especially your first credit card, to prevent your credit score from dropping.
If you do not have a credit score to apply for credit cards, a secured card is a great way to build your credit. However, secured credit cards do require a refundable security deposit. Since you do not have a credit score, the bank cannot determine whether you are capable of paying back the bank. Once you apply and are consistent with paying back the balance on time and in full, the bank can return your security deposit and upgrade your card to an unsecured credit card. An unsecured credit card is a type of credit card that does not require a security deposit as collateral to open an account. Mostly, if not all, are unsecured credit cards, which require a fair credit score to apply. I recommend applying for an unsecured credit card before considering a secured one.
I highly recommend using a credit card as your default form of payment because they offer protection against any fraudulent activities. For example, you are at a convenience store and you buy a snack with a debit card. When you walk out of the store, you receive a security alert from your back that someone has spent $500 dollars. Those hackers have your debit card information and have direct access to your checking account. Most of the time, it can be very difficult to recover those lost dollars. However, credit cards offer fraud protection with no extra cost and will remove that charge from your statement balance. These credit cards protect you if your card is stolen or lost while providing you with 24/7 customer service. They will also send you a new credit card with different numbers (from experience).
I enjoy using credit cards because I get “free” money every time I spend money. To earn the most points and maximize your credit card reward program, you need to strategically know which card to use before you swipe your card. For example, if I’m dining out, I will use the Chase Freedom Unlimited credit card because I will be earning 3 percent cash back. If I used a random credit card, I would earn 1 percent cash back.
Credit cards can give you “free” money when you spend however it will only work if you pay your full balance on time and/or in full. If you don’t, you will be charged with 20 percent to 30 percent interest, which will cost you more than what you earn from rewards. In other words, that “free” money isn’t free. The only way for you to benefit from credit cards is to pay off your statement balance in full.
Before you open a credit card account, it is important to read the credit and reward-earning terms. Some things you need to know are if the credit card has an annual fee to use the card. You also need to know the annual percentage rate (APR) for the credit card. This is the interest rate they will charge if you pay the minimum balance or make a late payment. Something to keep in mind is that annual fees, APRs and rewards can change over time. It is a good idea to keep track of your card’s terms and conditions even after you apply. Also, check if any of your friends or family have a referral code for a credit card they own. By using their referral link, you can potentially earn a cash bonus or other promotional rewards.
Pick the best credit card that fits your lifestyle and only spend what you can afford! Here are some of my recommendations below.
The Triple Threat (aka the best beginner cards to use on rotation)
Chase Freedom Unlimited
- $0 annual fee
- 0 percent APR for the first 15 months of opening. After APR is 18.99 percent to 28.49 percent.
- Unlimited 1.5 percent cash back on all purchases, 3 percent on dining and drugstores, and 5 percent on travel through Chase Travel
Discover Student Cash Back
- $0 annual fee
- 0 percent APR for the first 6 months of opening. After, APR is 17.24 percent to 26.24 percent.
- 5 percent cash back on categories that change every quarter. 1 percent cash back on all other purchases.
American Express Blue Cash
- $0 annual fee
- 0 percent APR for the first 15 months of opening. After, APR is 20.24 percent to 29.24 percent.
- 3 percent cash back on groceries, online retail, and gas. 1 percent cash back on all other purchases.
- $84 Disney Bundle Credit (Disney+, Hulu, and ESPN).
Renter-Friendly Card
Bilt Mastercard
- $0 annual fee
- APR is 20.49 percent to 28.49 percent.
- No foreign transaction fees
- 1X points on rent with no transaction fee, 5X+ points at Bilt Neighborhood Dining Partners, 3X points on other dining purchases, 5X points on Lyft rideshares, and 2X points on travel.
For the Foodies
American Express Gold
- $325 annual fee
- APR is 20.24 percent to 29.24 percent.
- No foreign transaction fees
- 4X points at restaurants, 4X points on groceries, 3X points on flights, 2X points on prepaid hotels, and 1X points on other eligible purchases.
- $120 Uber Cash, $84 Dunkin’ Credit, $100 Resy Credit, and $120 Dining Credit.
For the Travelers
Chase Sapphire Reserve
- $550 annual fee
- APR is 20.24 percent to 28.74 percent.
- No foreign transaction fees
- 5X points on flights, 10X points on hotels and car rentals booked through Chase Travel after spending $300 on travel each year, 3X points on dining/takeout, and 1X points on other eligible purchases.
- Complimentary Airport Lounge Access, $120 credit for TSA PreCheck every 4 years, etc.
For the Credit Builders
Discover it Secured Card
- $0 annual fee
- Minimum of a $200 refundable security deposit
- APR is 27.24 percent.
- 2 percent cash back at gas stations and restaurants. Unlimited 1 percent cash back on all other purchases.
