It is a fact not universally acknowledged that the smartest way to spend using credit cards is to use them when there is no utter need to purchase on credit. Those who have the necessary funds to never carry a balance can benefit the most by putting the bulk of their spending on credit whilst their money earns interest elsewhere during the interest free grace period. Responsible use of credit cards can help to ensure a high credit score, thus allowing access to the best cash back cards and reward programmes, whilst opening the doors to all the advantages of a good credit reputation.
Spending smartly on credit requires awareness of the credit scoring models requirements for a good credit score. Limiting credit card spending to less than 30 percent of available credit, always meeting all payments on time, and ensuring that a card remains open that represents the length of credit history, are all necessary steps to satisfy FICO and Vantage scoring models.
Additionally there are some credit card moves which the card providers actively encourage that do not have a negative impact on credit scores, but make no fiscal sense. Using credit cards for cash advances is the height of fiscal folly as cash advances offer no interest free period at all. They are charged at a typically high APR in the region of 27% that is applied from the moment the cash advance is taken. The card provider will also levy a fee for the pleasure of this expensive credit loan.
Making only the minimum payment on credit cards will delight the card issuer as interest is levied on the unpaid balance. Although there is no penalty imposed for handling credit cards in this way it is a dangerous practice to pursue. Interest charged on the balance will begin to attract compounded interest, often leading to debt. If a consumer needs to use credit but cannot afford to pay the balance in full, then ideally they should not be using credit cards as the total costs of purchases will far exceed the initial ticket price.
Balance transfer cards provide an excellent method to consolidate and pay down debt. Those who benefit from their usage use them exclusively for this purpose or to effectively take a low interest loan, having the means to repay it in full before the introductory period ends. Balance transfer fees can represent a saving on a typical bank loan if consumers need to borrow. However if balance transfer cards are used for purchases, they no longer represent a good move unless all purchases are paid off in full prior to the introductory rate expiring. It makes far more sense to separate general credit card usage from using balance transfer credit cards as a means to clear down debt.
Spending smartly on credit cards can bring rewards. There are a number of cards that offer a statement credit of value, in addition to cash backs and rewards. It pays to compare the various offers and read the small print to ensure the headline offer is not just a gimmick which only kicks in when a certain amount of expenditure had been made. As an example the Wal-Mart credit card advertises a cash back program of 1%, but until the cardholder has an accumulated spend of $3000 the actual rate is initially only a quarter and then a half of the advertised 1%.
Cash back cards in general offer a higher return than rewards cards, and to utilize them to the full cardholders should put all their monthly spending through them, including utility bills and other household expenses.
In summation smart use of credit cards means never paying a fee for the privilege, never paying interest, and reaping rewards. They should be considered for the perks they often give in the form of purchase protection, extended warranties, free insurance, and benefits such as roadside assistance. Spending smartly with credit will help to ensure a top notch credit score whilst putting cash back in the consumer’s pocket.