by Katie Tucker 
Credit cards are really tempting. You hand over your card, and get that new shirt, pair of jeans or whatever shiny new object you’ve been dreaming of, and your wallet stays just as full as it was before you made your purchase. Who can resist?
Credit cards often get a bad rap because they are so easy to use the wrong way. When used the right way, credit cards can be a good thing. In fact, credit cards can actually benefit your finances in a few different ways, from helping your credit score to scoring you free stuff, just for paying with them.
Improving Your Credit Score
Your credit score, which is a number between 300 and 850, is an indicator of your trustworthiness to lenders. It’s based on how reliably and consistently you use credit. It’s not calculated simply by having a card (although that is part of it). The score is calculated from six different factors, which represent different types of credit behavior:
- Percent of on-time payments
- Open credit card utilization
- Derogatory marks, such as accounts in collections or bankruptcies
- Average age of open credit accounts
- Total number of accounts
- Total hard credit inquiries
By regularly using a few cards and consistently paying them off in full, as well as staying comfortably within your credit limit, you’re well on the way to good credit.
A good credit score can help you get an emergency loan in unexpected situations. It can also help you get a loan that you plan for in advance, but with a low interest rate. My husband and I were recently in a car wreck that totaled our car. While we didn’t expect to buy a car soon, we both had high credit scores since we’ve been paying off our mortgage, student loans, and a personal loan. Because of our great credit history and credit scores, we got preapproved with a low interest rate!
Earning Rewards, Points, and Cash Back
If you haven’t started using cards that reward you for spending with airline miles, points or cash back, you’ve missed the boat.
No matter how your credit card rewards you (it’s usually in something like miles, points or cash back), the systems generally work the same: For every predetermined amount you spend, you’re given credit that you can redeem for some sort of reward, like a plane ticket, a night at a hotel or simply a check.
Before choosing a card that fits you best, you’ll want to compare your options to see which is the best one, we can help with that.
This isn’t an excuse to break your budget in pursuit of a few points, but if you’re going to spend money anyway, you might as well get a reward for it.
Paying for Emergencies
Ideally, you already have an emergency savings account. Most financial advisers recommend that you have at least six months’ worth of income put aside into an emergency savings account. But if you’re like most of us and have a less-than-ideal emergency fund, or you’re without immediate access to that account, a credit card can fill in the gap.
You can cover your costs with that card when disaster strikes, then pay the bill using the funds set aside specifically for that purpose. If your emergency fund won’t fully cover the credit card bill, use it to cover everything possible. Adjust your saving and spending next month so you can pay more toward the credit card balance.
Help is on the Way
The strategy is simple: Make a few routine purchases with your credit card each month, like groceries and gas. Next, pay the balance in full when you get your bill. When emergency strikes, use your credit card to securely pay for the expense and use your emergency fund to pay the bill. These steps will help create solid credit history and lead to a high credit score.
Interested in starting an emergency savings account? Now is the perfect time to start one at Alltru Credit Union.
