Understanding Credit for Smart Personal Finance

by Guest Author Eliza Morgan

For many of us, when we think about credit cards, images of extraneous bills and worries over credit card debt flood our consciousness. No doubt, debt is a
worrisome thing and poor credit use can heighten one’s cause for worry. But, if you’re educated about credit use and about the cards available to you, the right credit card can actually be a useful option for the right situations and individuals. Credit should be used as a tool for creating more successful financial choices rather than a last resort for items you might not be able to afford at that time. Before springing for the next best credit card available to you, educate yourself on some of the basics of smart credit use and learn more about your various options. Educated money decisions are the first steps towards smart personal finances.

The Basics
Spending and saving wisely are the two fundamental staples of smart personal finance advice. Of course, we all know that it’s imperative to spend wisely and save wisely. But what exactly does that mean? Telling someone to spend/save wisely is kind of a meaningless blanket statement. Sure, we’d all like to be “wise” with our money habits, but many of us might not actually know how to do that. Follow these very basic tips for wise credit use:

Watch Your Accounts
The best way to defend yourself against scary credit issues is to educate yourself on your credit use. Pay attention to your accounts and get a feel for your habits. Staying on top of your finances is a top priority. Pay close attention to rate changes, bill due dates, how high your balance gets, and look for any potentially fraudulent activity. Online banking has made tracking your spending and credit card use much simpler today. Check your online statement regularly. Keep your balance low and know when changes are being made.

Understand Transfers
Credit transfers have been a popular choice among credit users who want to lower their rates or take advantage of reward offers. While this can be enticing,
transferring balances on a credit card can be an unwise choice. In some cases, credit transfers can reflect poorly on your credit standing. Consider your current balance and the credit limit on the new card. If you make a credit transfer and instantly use up all the available credit on your new card with your old card’s balance, your credit score can suffer. There are also often fees involved with credit transfers. Keep in mind that getting a lower interest rate is not typically worth lowering your credit score. Examine your options and educate yourself on potential outcomes.

Only Apply for Credit You Need
This may sound simple, but it’s an important notion to keep in mind as a credit user. Don’t apply for credit cards that you don’t actually need. Having too many credit cards to your name can actually reflect badly on your credit score. Pick the one or two cards that are the best options for you and your financial situation and stick to those. While rewards programs and store credit cards can be tempting, they aren’t useful or helpful if you’re not actually going to use them consistently. Be selective about your credit choices.

Credit Card Types
There are several different types of credit cards that can be useful to different individuals. Before you run out and grab the first card offer you see, examine your choices.

Rewards Cards
There are several different types of credit cards that offer various reward options. Before opening a credit card, take a careful look at your spending habits. If most of your money is spent on groceries or gas, look for a reward card that rewards you for spending at those places. If you travel a lot for work or whatever else, a travel rewards card might be an excellent choice for you. Think about the areas of your spending that can benefit from a rewards program. With so many card options out there, you’re bound to find one card that can help with an area of your finances.

Business Card
Business credit cards can be a very smart option for small business owners. These cards have special options and rewards for business related spending. Many business credit cards will give a certain percentage of “cash back” for office supply purchases, gas charges, business travel, and other business expenses. These types of cards can be very wise options for small business owners.

Store Credit Cards
Specific store credit cards are another popular credit option. If you recognize that you do a large amount of your spending at one specific store, a store credit card can be a smart choice. You should evaluate the card perks very carefully to be sure that they will truly benefit you. Store cards can only be used at that specific store or branch of stores, so make sure that you will have enough use for a credit card with such a limited range.

Eliza Morgan is a full time writer and blogger for businesscreditcards.com. Eliza enjoys writing about all things business and finance related. When taking a break from the pen, Eliza likes to explore new city parks and dream about travelling the world. You can contact her at elizamorgan85@gmail.com.