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Using a credit card to pay for day-to-day purchases is a smart idea. Paying with credit is convenient, it's generally safer than using cash or debit, and it can be highly rewarding. Plus, if you’re using your cards responsibly, you’re building solid credit.
The basics of using a credit card are pretty simple: Buy something with it, earn rewards equal to a percentage of what you spent, and then pay your bill when it comes (ideally you'll be paying it in full so you don't get charged interest). But you can customize and optimize your credit card experience for greater value and protection. Here are seven tips everyone should know to get the most out of their cards.
» TIMELY TIPS: See this month's top credit card tips
1. Balance alerts can help keep spending in check
When you pay for everything with cash, it can be easy to see how much you're spending as those tens and twenties disappear from your wallet. Tracking how much you put on a credit card (or a debit card, for that matter) isn't as simple, especially if you're just getting started with credit.
Many credit card issuers, however, allow you to set up balance alerts — notifications that let you know by text, email or in-app message that your balance is approaching a certain level that you've set. You could set an alert for when your balance approaches, say, $500, or for an amount that equals 30% of your credit limit (the point at which a balance might start to ding your credit score).
The best way to prevent overspending, of course, is to create a budget and stick to it. Speaking of which ...
2. Spending analysis tools help you with your budget
Most major credit card issuers offer spending analysis tools, which you can access from your online account. You pick a date range — a month, a year, a customized period — and the tool shows you how much you've spent on your card in various categories. Those categories are typically determined by the merchant where you did your spending — supermarkets, for example, or gas stations, restaurants or department stores.
Look around for a tool next time you're logged in. It can provide insight on where you’re nailing your budget and where you might need to cut back.
3. Midcycle payments could boost your credit
Your credit card issuer reports your account information to the three major credit bureaus every month. One key data point that gets reported is your balance, which is used to calculate your credit utilization ratio. That ratio is the percentage of your available credit that you're currently using. If you have a $5,000 credit limit, for example, and your balance is $1,000, then your utilization is 20%.
Credit utilization is a major factor in your credit scores. It's an element of "amounts you owe," which accounts for 30% of your FICO score. In general, you want to keep utilization under 30%, but the lower, the better.
But here's the thing: Your card issuer doesn't necessarily report your account information after you make your monthly payment. It could be reported at any point in your billing cycle. Depending on when that is, and how much you charge each month, the utilization that gets reflected in your credit scores could be high or low. One potential solution: Don't wait till your due date to pay your bill. Make a habit of going online in the middle of the billing cycle and paying down your balance.
Making midcycle payments can also save you money on credit card interest. Interest, when you owe it, is calculated based on your average daily balance. Making payments early, or making extra payments each month, reduces that average daily balance and therefore the interest charged. Keep in mind, though, that if you never carry a balance from one month to the next, you don't pay interest anyway.
4. Bonus malls and offers can earn stellar rewards
If you’re a big online shopper, check whether you can earn extra rewards by going through your issuer's bonus mall or card-linked offers. Doing so might earn you, say, 10% cash back on a purchase rather than the regular 1% to 2%. Or you might get an instant rebate of $5, $10 or more. Some issuers promote these options more heavily than others. Poke around on your issuer's website or app to see what's available.
5. Moving your due date can keep you on track
Missing a credit card payment is bad news. You'll probably get hit with a fat late fee, and since 35% of your FICO score is determined by your payment history, a late or missed payment can be disastrous to your credit. If your credit card due date falls at an inconvenient time during the month — whether because you're too busy or because of your cash flow — ask your issuer if you can switch it. You may be able to do this online or by calling your issuer.
6. Strategic card combinations amplify rewards
Rewards credit cards come in many variations, but their rewards structures are typically one of two types. A card either pays the same rewards rate on everything — known as a "flat-rate" card — or it pays bonus rewards in specific categories and a lower base rate on purchases outside those categories. Combining cards with bonus rewards in the categories where you spend most, along with a good flat-rate card for everything else, can significantly boost your earnings.
There are countless combinations, but here's one example of how a few no-annual-fee cards can stack up to produce big-time rewards:
Blue Cash Everyday® Card from American Express. Earn 3% cash back at U.S. supermarkets on up to $6,000 in spending per year; 3% back at U.S. gas stations on up to $6,000 in spending per year; 3% back on U.S. online retail purchases on up to $6,000 in spending per year; and 1% everywhere else. Terms apply (see rates and fees).
Chase Freedom Flex℠: Earn 5% cash back in rotating categories that you activate (on up to $1,500 per quarter in spending, then 1%); 5% on travel purchased through Chase; 3% on dining and drugstores; and 1% on everything else.
Citi® Double Cash Card: Earn 2% cash back on every purchase — 1% when you buy something and 1% when you pay it off.
With this combination, you'd earn 2% to 5% cash back on everything you buy. If your spending is in line with that of the typical U.S. household, you'd come out way ahead compared with using just one card.
7. 0% APR promotions can save you big on interest
If you’ve gotten into some credit card debt or need to make a big purchase you don’t have the cash to cover, a credit card with a long 0% APR promotion can save you hundreds or thousands on interest. Just make sure to you use that interest-free period to pay down the debt, not just put it on hold.
To view rates and fees of the Blue Cash Everyday® Card from American Express, see this page.