5 Ways to Make Your Credit Card Work For You

Credit cards are seen as evil, ugly – and most commonly – bad debt. However, owning a credit card does not automatically mean you will begin accumulating bad debt. In fact, there are a number of ways you can benefit from owning a credit card, and ways you can actually make your credit work for you.

1 Choose a credit card that will work for you

There are so many different types of credit cards out there and that is because there are so many different types of people using them. There are the cards for people who never seem to pay off their balance and so they have a low ongoing interest rate. There are the cards for people who want rewards and travel insurance and flashy extras for everyday use and there are cards for people who don’t use their cards very often so they can pay a lower or $0 annual fee.

To ensure your credit card is working for you, you need to ensure you are using the right credit card. Don’t choose a rewards credit card if the rewards are not ones you would ever use. Make sure you set a credit limit on your card which you can comfortably meet and repay each month so you don’t get swallowed up by credit card debt. Choose a credit card which gives you the access and features you need; do you want additional card holders or a companion card for wider usage?

In choosing the right credit card for you and your needs, it will be working for you from day one.

2 Build your credit history

If you make sure to use your credit card responsibly, it can be working for you by building a strong credit history and a positive credit report. Having a good credit report is important if you want to get a business or personal loan, apply for a mortgage or even for a job. However, having nothing on your credit report does not automatically show you in a good light – just like showing up to a job interview with a blank résumé doesn’t make you an appealing potential employee.

Instead, make sure there is something good on your credit report by having your credit card work up a good history for you. You can do this by making your monthly payments on time and keeping your balance under control. You can even ask your credit card provider to raise the limit on your card, so that the percentage of the balance you are using is less, because on your credit report this goes towards showing how responsible you are. Just make sure you really are responsible, and aren’t tempted to spend up to your new limit.

3 Collect working rewards

Rewards are one of the most tangible ways our credit card can work for you, but only if you know how to work it. Firstly, choose a credit card with rewards you want and will use; you can usually choose from cash back offers, discounts on purchases at certain stores or points accumulation so you can convert your points to products or services. Some credit cards will even waive the annual fee for you if you spend a certain amount on your card in a year.

Then make sure that the rewards are easy for you to obtain within your current credit card spending habits. There is no point in overspending to accumulate points on your credit card if you can’t afford to pay back the balance. Instead, go for credit cards where the rewards and points don’t expire, and which are easily obtainable and transferrable.

4 Use interest free periods

Most credit cards will have an interest free period, where purchases you make on the card don’t accrue interest for a certain number of days; sometimes as long as 55 days. By using the interest free days on your credit card, your credit can work hard for you, and help your money work harder too. For example, each pay day have your wages transferred to a high interest savings account and don’t use them. Instead, use your credit card for all purchases and bill payments in the month; keeping in mind the amount you will have in your wages account as this needs to repay the balance at the end of the month. Before the end of the interest free period on your credit card, transfer the amount you need from your wages, to your credit card to pay the balance down to zero. You can now leave the remainder of your wages, and the interest they have earned in the month, in your high interest savings account, or transfer it to a long term savings account or investment.

Using your credit card in the month also saves you transaction fees for all the purchases and withdrawals you would normally make from your transaction account. Just remember, the purchases on your credit card are only eligible for interest free days, if you have paid off your old purchases and your balance returns to zero at the end of each interest free period.

If in a month your wages are not going to cover the balance of your credit card, disciplined users can make two different credit cards work for them in this instance. To make this work you will need two credit cards, one with a long interest free period and one with a low interest rate – credit cards don’t typically have both features in one card. If you have gone about making all your purchases on your interest free period card but you don’t have enough in your wages account to repay those purchases, use a cash advance from your low interest credit card to make the payment. your interest free period credit card balance is back to zero and you have a portion of that balance on a low interest credit card, which you can now pay off at a low interest rate.

5 Balance transfers

You can also have your credit card working for you by allowing it to pay off another credit card debt. A balance transfer credit card is one offering a low or 0% interest rate if you transfer a balance from a credit card with a higher interest rate. In transferring the balance from a high rate credit card to one with a lower rate, you are paying less in interest charges and can more easily pay down your balance as more of your monthly payments are going towards the principle amount.

However, to ensure a balance transfer credit card really does work for you, always be aware of the expiry date of the low or 0% interest rate. Balance transfer interest rates are often offered for a limited time, and once they expire, the interest rate reverts to one just as high – and sometimes higher – than the one you were paying before you transferred.

Also remember to never spend on your balance transfer card until your balance is repaid. The interest rate applied to purchases on a balance transfer credit card is usually much higher than the transfer rate too. Plus, new purchases will be paid off from your monthly repayments only after your transferred balance is repaid, so your purchases can be accruing interest for months while you pay down your original balance.

Once you know how to use and control your credit card, you can have it working for you, sending you gift vouchers, offering you discounts, growing your savings or helping you manage your debt.

Jeremy is a personal finance writer at Credit Card Finder. He helps people to compare credit cards online.

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