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5 Ways to Make Your Credit Card Work for You

Jan. 30, 2015
Credit Cards, Credit Score, Personal Finance
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It’s no secret that the Nerds are crazy about credit cards. Not everyone feels the same way. Part of the population dislikes credit cards and believes plastic works against consumers and keeps them in debt. We believe that responsible credit card use can make your card work for you, instead of the other way around. Here are five ways that you can make your credit card benefit you.

1. Pay your bill on time, every time

The No. 1 thing you can do for a happy, healthy credit score is make your payments on time. At the very least, you need to make the minimum payments on all of your credit accounts. You should also pay your non-revolving bills (like utility bills, car loans, etc.) on time, since they may be sold to collection agencies if they go unpaid for too long.

In addition to dinging your credit score, late payments can result in penalty interest rates and late fees. To avoid this, set up automatic payments and/or notifications to pay your bills.

2. Avoid carrying a balance

While making your minimum payments is enough to keep your payment history in tip-top shape, you should pay off your balances in full. The reason is twofold: First, you’ll keep your credit utilization at a reasonable percentage; and, second, you won’t incur interest.

Experts recommend keeping your credit utilization — or the percentage of your debt balance in relation to your credit limit — below 10%. Balances may be reported mid-billing cycle, so try to keep your utilization low at all times.

Credit card debt is generally the most expensive form of financing, with rates in the high teens and low 20s. If you consistently carry balances, you could lose thousands of dollars to interest, so it’s important to pay off your balance in full.

3. Keep it around for a long time

Open and active credit card accounts go into calculating your average length of credit history. The longer your credit history, the better, so don’t close credit cards lightly. Keep your cards open and use them to ensure your accounts don’t get closed due to inactivity.

4. Redeem your points/miles for high-value rewards

Rewards credit cards provide an average of 1% to 2% back on your purchases. The points, miles or cash back you earn is redeemable for cash, gift cards, travel and/or merchandise, and some rewards may be redeemed at higher values than others. You should check out the Nerds’ review of your favorite rewards credit card to see which redemption options we recommend to get the best value out of your rewards.

5. Know your benefits

Many credit cards come with a slew of useful benefits, including price protection, extended warranty protection, a free FICO score, rental car insurance and trip cancellation coverage. To ensure you’re taking full advantage of your credit card, you should spend some time going over your benefits statement to figure out which benefits may be useful to you. Knowledge is power — these benefits could save you hundreds or thousands of dollars, over the life of your card.

Image via iStock.