How to properly use a credit card
I am a first time owner of my own credit card. I got it with the purpose of building my credit to be able to receive loans for cars/house and things of that sort.
I have amounted some student debt but now have a healthy steady income. I also keep very close track on my daily expenses and how I spend my money.
My plan with using my credit card is to pay it off in full when I receive the bill.
My question lies in how I should be using it though.
Should I use it like how I’ve been using my debit cards? i.e. for lunch/dinner/coffee and other every week expenses…gas, groceries, random stops at the local convenience store… (just about everyday)
Or should I use it for only specific expenses like gas and groceries? (rather seldomly)
Like I said, my goal is to build my credit score and I’d like to know the most effective way to do so (do more purchases on my credit card, and paying it off in full equal higher credit score?)
First of all, do not let your balance carry over and build interest – always pay off the balance at the end of the month.
Second, do not buy more than you could afford if you were using a Debit Card or Cash – make purchases you know you can afford.
As for where to use your credit card, in practical terms if you’re following the two statements above to the letter, anywhere you would be able to use a Debit Card you can use your Credit Card instead – it doesn’t have a huge impact on your credit score, but it does give you a credit identity at the very least.
The real benefits of using a Credit Card are:
Is the credit card you got some type of rewards card? If so, I’d definitely recommend making your regular daily purchases with it to maximize rewards, then paying it off in full each month.
If it’s not any type of rewards card, just make regular purchases, maybe when you shop online, and pay that off in full as well. Credit cards are helpful because they provide more protection than debit cards do in terms of fraud protection and unauthorized charges.
Personally, my credit card number has been stolen about 3 or 4 times and charged any where from $4.95 to $250. I report it and was never held liable. If my debit card number was stolen, I may or may not have ever seen that money again.
Now, I use my credit card when shopping online or at major retail stores to be safe.
If you carry a balance (which you shouldn’t), make sure to keep it under 30% of your credit card limit.
The “proper” way to use a credit card is to never charge more than you can afford and pay the balance off in full every month. There’s no secret formula, just don’t get in over your head with charges!
It’s pretty easy to build your credit if you responsibly handle your card.