Many consumers are able to accumulate a huge amount of reward points by using credit card promotions. These reward points can pay for airfare and lodging while you travel, as well as provide cash back on your purchases. However, careless use of credit cards can severely damage your credit rating. Consider these tips to make smart decisions about credit card use.
Start with a personal budget
Before you dive into credit card use, put together a monthly spending budget. To start the process, take a look at your bank statements for the last few months. Those documents reveal your spending patterns.
As you go through your bank statement, you can quickly find the amounts you pay for your home mortgage or your car payment. The most meaningful part of the budgeting process is to learn about spending habits that are less apparent. You may find that you spend $70 a week dining out. Is that a habit you want to continue, or would you rather save some of that $70 each week?
Once you review all of your spending, make some decisions about monthly expenses moving forward. Write down a budget and make a commitment to stick with it. Take a glance at your budget each week, and compare it with your actual spending. That’s a great way to stay on track.
Using your budget to generate credit card rewards
To maximize the potential rewards you can earn, try to shift the majority of your monthly spending to a credit card. This article makes several points about that process. Most reward cards require you to meet a minimumspending limit to earn a sign up bonus. The sign up bonus offers a large amount of rewards points. You can meet that spending minimum by shifting your normal monthly spending to the new credit card.
This process, however, requires some selfdiscipline. Plan your spending so you can always pay the entire balance on time. That step will allow you to avoid late fees and interest on a credit card balance. If this monthly spending is in your budget, you should have the cash to pay off the balance each month.
The impact of late payments, card balances If you’re not able to pay down your credit card balance each month, you’ll incur interest payments on your card balance. Eventually, you’ll need to pay back that balance. To pay the balance, you’ll need to adjust your monthly budget to fit in those payments. Keep in mind that a credit card balance will be included in your credit report.
Late payments are also reported to credit bureaus. Your credit rating will decline, based on late payments and new credit card balances. Before starting your credit card use, think carefully about how you’ll use the card for spending.
Deciding on a rewards card
Once you create your budget and decide to use a rewards credit card, you need a tool to decide on which card to use. There are several tools you can use. Cardratings.com provides an extensive list of reward credit cards. When you go to their home page, you’ll find a section for reward cards. The list explains each card’s onetime bonuses, and the points or miles that they offer. You’ll also find the annual percentage rate (APR) on each card, and the credit rating you’ll need to be approved.
Other credit card sites sort cards by the type of benefit or reward you want. Nerdwallet.com allows you to sort through cards based on your preferences. You may, for example, want a great signing bonus, or the ability to earn cash back on your spending.
You can find that preference and review credit cards that offer that benefit.
Credit cards and your credit rating
Your credit card applications, card balance and payment history will be reported to credit bureaus. This reporting helps determine your personal credit rating. You need to maintain a good credit rating to access credit at reasonable rates in the future. Sometimes, a creditor will report incorrect information to a credit bureau. Credit repair companies like Lexington Law provide guidance on correcting these errors. If you have trouble getting inaccurate data removed, consider contacting a credit repair firm. They can use the current credit reporting laws to get incorrect data removed from your credit report.
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