Credit cards offer instant, convenient access to credit whenever you need it. Used right, that can help you spread out your spending and build credit that can help you afford big-ticket items like a home or a car.
Used in the wrong way, your card can become a tempting path to a debt trap, where you’ll spend years paying off rapidly accumulating interest—while seriously damaging your creditworthiness.
Understanding credit cards and how they work is a critical part of long-term financial success. In this blog we take a closer look at how the wise use of your credit card can help you manage your spending responsibly while building the rock-solid credit score you’ll need to power future long-term borrowing.
We’ll look at:
- Smart Tips for Wise Credit Card Use
- How to Use a Credit Card to Build Credit
- Why You Should Choose a Credit Union Credit Card
- Why You Should Start Your Credit Journey With Wasatch Peaks Credit Union.
SMART TIPS FOR WISE CREDIT CARD USE
A credit card can help you spend money more wisely, but only if you know how. These pro tips are essential to managing your credit responsibly for long-term success.
PAY ON TIME
Simple but true. Making sure you pay your credit card bill by the due date lets you access all the benefits your card offers while avoiding late fees and extra interest charges. Paying bills on time is also one of the biggest and longest-lasting factors affecting your credit score.
PAY OFF YOUR BALANCE IN FULL EACH MONTH
Avoid the temptation to make only the minimum payment on your credit card, especially if it’s not part of a planned purchase. A snowballing balance can quickly get out of hand as monthly payments increase and your interest rate rises, potentially putting you in a long-term debt trap where you cannot afford to pay for items you’ve purchased.
By contrast, paying off your full balance within the monthly billing cycle means you are essentially borrowing money for free, a valuable thing at a time of sky-high interest rates.
SPEND WITHIN YOUR MEANS
Don’t make the mistake of seeing your credit card as a way to spend money you don’t have yet. Credit cards offer convenience, not extra income. That’s why it’s important to always spend within your means, no matter what the credit limit on your card is. Having a credit card is not an excuse for not sticking to your monthly budget!
MAINTAIN A LOW UTILIZATION RATIO
If you need to carry a balance on your card to pay off a larger purchase or manage unexpected expenses, try to keep the portion of your available credit that you use as low as possible. As a general rule, keep your credit utilization ratio below 30%. This will minimize a negative impact on your credit score and make it more likely that your lender will increase your credit limit in the future.
UNDERSTAND YOUR CREDIT CARD TERMS
Take the time to read through the paperwork that comes with your credit card. It’s important to understand details such as the annual fee and interest rate you will pay, plus perks such as an initial interest-free period or perhaps cash-back rewards. Pay particular attention to how interest and late fees are calculated.
BE SMART ABOUT REWARDS
Many cards offer what appear to be very generous rewards, but to take full advantage of them you need to pay careful attention to the fine print about how you earn these rewards. Frequently, cash-back bonuses are paid only for certain qualifying purchases and there could also be restrictions on how this money can be redeemed.
HOW TO USE A CREDIT CARD TO BUILD CREDIT
There’s more to your credit card than just convenience. It’s also a powerful tool for demonstrating your ability to manage debt responsibly. Credit bureaus watch your credit card use closely for missed payments and overborrowing, but also as evidence of sensibly handled debt.
Let’s take a look at a few key ways that your credit card use affects your credit score and how you can use your card to improve that score.
PAYMENT HISTORY
Your credit card bills provide a clear record of your ability to pay bills on time and in full, which is a critical trait for card issuers or anyone else thinking about lending you money. In fact, payment history makes up a full 35% of your credit score at any time, while payments missed by 30 days or more can stay on your record for as long as seven years.
AMOUNT OWED
Your total credit card balance is also significant. Credit bureaus track how much you owe in total, as well as a portion of your total credit limit across all your cards or revolving credit accounts. This credit utilization ratio should ideally stay below 30%.
CREDIT HISTORY
Open credit card accounts can also help extend your credit history, or the length of time over which information about your debt management exists. Maintaining a credit card—which makes up 15% of your credit history even if you don’t use it—helps to extend your credit history.
NEW CREDIT
While adding credit cards may help to improve your credit utilization ratio, applying for and opening a new credit account will slightly lower your credit score temporarily. Therefore, be cautious about applying for multiple cards over a short period, since this can repeatedly ding your score.
Keep in mind that new credit applications can comprise up to 10% of your total credit score.
WHY CHOOSE A CREDIT UNION CREDIT CARD?
Credit card issuers now include a wide variety of financial institutions, vendors, and merchants. Who issues your card can have a big effect on the specific terms and conditions that your card comes with, including interest rates, fees, and other charges.
Choosing to apply for your credit card through your local credit union rather than a big commercial bank comes with some big advantages.
Most importantly, credit unions are owned by their depositing members, rather than shareholders and investors. That means not-for-profit credit unions like Wasatch Peaks Credit Union keep control of more of the profits they make through lending money and therefore can afford to charge fewer and lower fees on transactions.
Here’s what that means for you:
- Lower fees and interest rates: Our credit cards typically charge lower fees than those issued by banks and you’ll usually pay little to nothing in annual fees and other charges.
- More focus on you: At Wasatch Peaks, you’re a face and a name to us, not just an account number. We have the time and resources to understand your financial goals and match you up with a credit card that truly aligns with your needs and resources.
SMART SPENDING STARTS WITH WASATCH PEAKS
Ready to take the next step on your journey to financial success? Owning and managing a credit card not only gives you access to the borrowing power you need, but it also provides a simple and convenient avenue to spend your way to a better credit score.
At Wasatch Peaks Credit Union, we offer a range of credit cards to suit your individual needs. From our generous VISA® Summit Rewards and 1% and 1.5% Cash Back cards to our low-APR No Cash Back card—we’ve got a card for everyone. While each card offers something different, all of our credit products include:
- No annual fees
- Competitive variable interest rates
- Lost or stolen card replacement at any branch
- Convenient account management with our online portal or mobile app
- Free eStatements for easy tracking
Contact us today to start your journey to smarter borrowing and better credit or click below to learn more about our credit card offerings.
