Depending on how you use it, a credit card can either be a positive or negative tool in your financial life. There are some ways to use it to work in your favor.
Many credit cards offer rewards for charging a certain amount each year. These rewards often consist of free airline miles, hotel stays or dividend rewards. Some cards offer a rebate of a percentage of the amount of your purchases. For example, some cards offer cash back rewards up to 5 percent of your purchases. In order to take full benefit of these rewards it is important to not charge more than you can pay off fully within a month or two. If you charge a large amount in order to receive the rewards and carry a balance for a number of months or years, the amount you pay in interest charges and late fees may negate the amount of the rewards. In some cases, you may end up paying more in the end in fees than the rewards are worth.
One thing to keep in mind is if your credit card has an annual fee. Some reward cards come with an annual fee, which may not make the rewards as desirable. You need to weigh the benefits you are expecting form the rewards against the annual fee of the credit card.
If you are attempting to repair your credit score, it may be beneficial to make some charges to your credit card. Over time, making charges and paying them off on time can have a positive effect to your credit score.
There are some travel benefits that may be available when charging your travel expenses to certain credit cards. Some cards offer additional travel insurance, trip cancellations and lost luggage. Some reward cards offer free luggage fees for you and a certain number of travel companions.
Some credit cards offer return and purchase protection. If you are unsatisfied with your purchase and the retailer will not accept the return, then you may be to recoup the funds from your credit card company. Each company has different guidelines about the dollar amount of the purchase and time frame for the refund. The same is true for purchase protection; some credit card companies will refund your money if an item you purchased was lost or damaged within a certain period of time after the purchase.
Before purchasing an “extended warranty” at the time of purchasing some items, check with your credit card company to see if they offer an extended warranty when you charge the purchase to their card.
If you use certain credit cards to pay for a rental car, then the collision insurance offered through the rental company may be covered as a perk from your credit card company. In some cases, you will need to ask for to opt into the service and with others you simply get it by default if you rent the car with an eligible card.
There are some tips to using credit cards to work in your favor.