4 Tips for Savvy Credit Card Use
Your credit cards are an important part of your financial portfolio. When you use them wisely, they offer a plethora of benefits. You don’t need to carry around a big wad of cash, and if you use reward-based cards, you can earn some great perks. Also, you typically have a safety net through your lender in case of fraudulent card use. And you can build up a strong credit profile when you pay your credit card bills in full each month.
But many credit card users also encounter significant pitfalls that trap them in financial insecurity. Take sky-high spending limits: they make it all too easy to spend beyond your means. And it’s not hard to lose track of time and miss a payment. Those missed payments lead to hefty fees and other penalties – not to mention damaging your good credit.
We talk a lot about how to use your credit card responsibly. Pay your bill on time. Pay off your balance each month. Report a lost or stolen card ASAP. But what about some other less obvious steps? To be a truly savvy credit card user, consider these pro tips that you might not have known about.
Make Midcycle Payments
In addition to paying your balance by your due date, try adding an extra payment a couple of weeks beforehand. Midcycle payments have multiple benefits. For one, your account information, including your balance, gets reported to the credit bureaus each month. This information helps determine your credit utilization, or the amount of your available credit that you’re currently using, which impacts your credit score. The tricky part is that your information might be shared before your statement due date, leading to a report of high utilization.
Midcycle payments can also save you a bunch of money on credit card interest if you’re not able to pay off your full balance. Interest is based on your average daily balance, so early or extra payments will reduce that average and lead to a lower interest charge.
Set up Balance Alerts
It can be difficult – and somewhat surreal – to track your spending when you throw everything onto your credit card. It might feel like the sky’s the limit… until your balance comes due and you realize you can’t cover it this month.
The good news is that most credit card lenders now have a system that notifies you when your balance is nearing a pre-set level. You’ll need to set up this handy notification through your lender, so be sure to do this for each card you carry. You determine the spending level that prompts the alert, and you can typically choose how to receive your notification (common choices include text, email, and in-app messenger).
Determine Your Own Due Date
Most credit card companies allow customers to select their statement due dates. If yours isn’t conducive to your circumstances – perhaps it hits before payday, aligns with some other major bill, or falls at another inopportune time – it’s more likely that you’ll miss a payment. Contact your lender to ask about switching the deadline. This is usually an easy fix but not something many people consider.
Steer Clear of Cash Advances
Do everything in your power NOT to use your credit card for a cash advance. Withdrawing cash from an ATM using your card is a dangerous step that can have disastrous consequences due to the extremely high associated fees – much higher than the annual percentage rate (APR) of a standard credit card purchase. These fees are applied immediately upon withdrawal. In addition, there’s usually a withdrawal fee somewhere around 10% or $5 (whichever is higher).
Consider this: It’s not uncommon to see an ATM withdrawal fee around $3, a cash advance fee around $25, and a cash advance APR around 25%. This means that withdrawing $500 could lead to as much as $528 on your credit card statement ($500 cash plus $3 ATM fee plus $25 cash advance fee.) And this amount doesn’t include the interest if you don’t pay off your bill when it comes due. The convenience of ready cash just isn’t worth these fees.
Want to become a savvy credit card user? Have you tried these tips to no avail? At American Credit Foundation, we understand that it can be tricky to figure out the best way to use your credit cards so that they work for you. Give us a call today to speak with a member of our counseling team. We’ll help you determine the strategies that will keep you financially strong as you navigate through your credit card journey.