How to Use Credit Cards to Your Advantage

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Make the Most of Your Rewards Credit Card

Americans are no strangers to plastic. At the close of 2009, there were more than 576 million credit cards in circulation in the United States, according to the Nilson Report. Stacked end-to-end, that’s enough cards to more than circle the Earth.

Of the more than 176 million Americans who have at least one credit card, 56 percent said they carried an unpaid balance in the previous 12 months, according to a recent survey by the Federal Reserve Bank of Boston. That leaves 44 percent of us who pay our balances in full each month.

If you’re part of the 44 percent, there are ways to take advantage of your smart use of credit. If, on the other hand, you’re in the group of Americans who carry a balance on your credit cards, these tips aren’t for you. As soon as you pay interest, which you do if you’re not paying your full credit card balance each month, these advantages will work less and less in your favor.

How to Make Credit Cards Work for You:

Let’s lay one important ground rule: to use credit to your advantage, you should choose a credit card that doesn’t charge an annual fee – or at least one that’s very low. That’s because the tips ahead are based on the idea of earning points. If you pay fees to earn points, you may actually be paying for your own perks.

For example, let’s say you charge $5,000 on your credit card in a year. If your card offers 1 percent cash back – or the equivalent in points that can be used to purchase goods – your credit card company is giving you back $50 of your money. If your annual fee is $50, you’re back to $0 – and no perks. So before you get too excited about the prospect of points, make sure you do the math to determine if they’re worth it.

Make the switch from cash to a rewards credit card.

Rewards cards allow you to earn points toward products, airline miles and even cash-back. By paying your balance in full every month, you can often avoid interest, fees and other charges that can make points, well, pointless. If you don’t already have a rewards credit card, consider getting one. If you have one, use your card to charge items that you’d normally pay for with cash or check.

Because you’re not paying interest on your charges but are earning points that are good toward purchases or cash-back, you’re actually earning money in interest. In effect, your credit card company is paying you. That’s a perk that you just don’t get with cash! Plus credit cards offer additional benefits, like fraud protection, that cash doesn’t. If you’re a cash-only consumer and responsible with your budget, you may want to consider “cashing in” on credit card rewards to make the most of your money.

Charge monthly bills, especially your largest bills, on your credit card.

If you have to make a payment anyway, you might as well get a little something extra for it. Big ticket items can add up to big points fast. Find out if your largest payments, like rent or tuition, can be made on your credit card. You may be surprised to find out who accepts credit cards these days.

A note of caution: Before you start charging large amounts to your credit card, make sure you know your credit limit. If you charge more than 50 percent of your credit limit or worse, go over your credit limit, your credit score may suffer.

To find out what your credit limits are, take a peek at your credit report (and score) for free – no catches, no trial subscriptions, no credit card required – at

Use points for things you need rather than things you want.

If you use your points for purchases you’d make anyway – like groceries, home goods, clothing and other necessities – you’re actually saving yourself money. Instead of paying with cash, you’re paying with points you ultimately earned for free. However, if you use points instead for luxuries and extras, you’re not really saving yourself any cash. So before you splurge, think about what perk you’d prefer: savings or spending.

If you manage your credit wisely and avoid unnecessary fees and interest charges, your credit cards can be convenient tools to help you manage your money. But remember, one false step and the benefits of credit you may be enjoying now can quickly slip away. To maintain a good credit score, and the best interest rates and terms, make sure you always pay your bills on time and only spend what you can afford.

For more tips and tools to help you manage your home, money and credit – including the most affordable credit monitoring on the web and complete identity theft protection – visit

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