The 4 best ways to use a credit card

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In a Nutshell

Credit cards can offer a convenient way to pay for day-to-day expenses and may help you build credit, earn rewards, pay off debt or finance a purchase you can pay off over time. But if you’re not careful, a credit card could also lead to high interest charges, increasing debt and a ding to your credit health.
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Credit cards can be useful tools to help you manage your finances and build your credit history.

We’ll explore four ways you can use your card: Build credit, earn rewards, pay down debt and finance a purchase. We’ll also give you some tips for using your card so that you can help avoid racking up unnecessary debt or negatively impacting your credit.

1. Using a credit card to build credit

If you’re new to using credit or want to improve a less-than-stellar credit history, getting a credit card may be a good first step for you. There are two types of cards you can apply for: Secured and unsecured.

Secured cards require a deposit, which is often refundable, that’s usually equal to your credit limit and will be used as collateral. Unsecured cards don’t require collateral and are granted based on your creditworthiness.

Payment history for both types of cards is typically reported to the three major consumer credit bureaus. Making your payments on time and in full can help you establish a pattern of responsible borrowing and can help you boost your credit, whereas late payments can negatively impact your credit.

2. Earn rewards

Credit cards can be a great way to earn rewards or cash back on purchases you’d be making anyway. There are a variety of rewards cards to choose from, including travel, hotel, airline and cash back cards. The type of card that’s right for you will depend on the kind of rewards you want to earn, your lifestyle and your spending habits.

If you’re going to use a credit card to earn rewards, you should try to only use your card to pay for items you’d normally buy anyway and that you know you can pay off. Also, many rewards cards have an annual fee. If you won’t earn enough rewards to offset the fee, it probably makes sense to opt for a different type of card. 

3. Pay down debt

Many credit cards offer balance transfers with low or no interest for an introductory period. If you transfer high-interest debt and pay it off before the promotional period ends, you could save yourself a bundle on interest charges.

If you use a credit card to reduce debt, we don’t recommend making any additional purchases with that card until you pay off the balance in full. Also, some credit card issuers charge a balance transfer fee when you transfer your balance from a different card.

4. Finance a purchase

For the most part, a credit card isn’t your best bet for financing a purchase, since interest rates are typically high. But a card with an introductory 0% purchase APR can give you an opportunity to pay off a big purchase interest-free. If you can pay off the balance in full and before the intro rate ends, using a credit card to finance a purchase may be a good option.

Just be sure to carefully read the fine print of any credit card you use. Some credit cards offer deferred interest promotions, which means if you don’t pay your balance in full before the offer ends, you could be on the hook for all of the interest that accrued during the promotional period.

Bottom line

There are many benefits to keeping a credit card in your wallet, but there are some risks, too. The trick to using these benefits while maintaining healthy credit card use is to use them to pay for items you’d buy anyway, pay your bill in full and on time every month, and keep your credit utilization rate low.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.