How to Use Credit Cards Effectively As Money Management Tools

Gaining credibility as a financially responsible adult starts with the credit score. The three-digital number is synonymous with the report card you receive in school, providing lenders with an assessment of how well you manage your money. Depending on how low your credit score is, lenders may not be willing to extend credit to you, or they may charge you a higher interest rate to borrow money.

Good habits increase your score.

There are ways to boost your credit if you want to be in good standing. You can set up bill payment reminders, enroll in autopay, or commit to making multiple credit card payments every month to ensure you don’t receive a bad mark for being tardy. A good rule of thumb is to avoid using over 30% of your total credit and pay off your balance in full every month. If you seek to obtain multiple credit cards, make sure you don’t open too many at the same time. That could negatively impact your length of credit history or new credit, accounting for 15% and 10% of your overall credit score, respectively. However, signing up for a new credit card has the potential to increase your credit score because it can decrease your overall credit utilization.

How to start building a solid credit foundation for your kids.

If you’ve mastered your own credit card goals, you can help your kids establish credit by adding them as authorized users on your card. Your child may inherit your credit history, so consider this an option if you have an excellent credit history and habits. As soon as your child is born and has a Social Security number, they can gain access to credit. A child with an established credit score can qualify for lower interest rates, increase their odds of getting approved for housing, and have a better chance of getting student and car loans.

It’s good to note that the card will be in your child’s name, but you will be responsible for making all the payments. Some parents choose not to give their kids the physical card until they have proved they are responsible enough to manage it.

Credit cards offer built-in benefits that can help you budget and manage your cash flow. Although it’s easy to swipe and go, credit card companies provide you with a report of every purchase you’ve made that makes it hard to ignore any bad financial habits. This recurring reality check will help you gain more control over your spending and create a stricter monthly budget.

Spend tracking:

The best way to use a credit card for budgeting is by taking advantage of the spending report provided by credit card issuers. You’ll see expenses assigned to categories like dining, travel, gas, streaming services, and groceries to give you a snapshot of where most of your money is going. Some credit card companies offer a year-end spending summary that shows you your top spending categories, top places where you’ve spent money, and spending activity by month. But often, you don’t need to wait until the end of the year to see this information. Accessing an app to manage your card may give you real-time visibility into transactions. From there, you can filter and evaluate the data for budgeting purposes.

Cash flow management:

You can use your spending reports to better align your income with your expenses. If your credit card bill is due on the third of every month and you get paid on the 15th and 30th, you can make a payment each time you receive income instead of making one lump sum payment on the due date. Keep in mind that you’ll always need to meet the minimum payment due to avoid your credit card company reporting a missed payment to the credit bureaus. But making multiple payments throughout the month, as long as they’re more than the minimum due, could help you repay the balance more quickly. Also, you can call your credit card company to request a monthly payment date that better aligns with your income schedule.

Credit cards are a smart way to keep track of money you’ve already spent. Plus, you’ll be able to take advantage of discounts that your card offers, helping you save more money and work toward your financial goals.

Credit cards give you financial power, but you must know how to use them wisely. Once you understand how it all works, then you can use credit cards to manage your lifestyle.

For example, if you love to travel, take advantage of travel credit cards that grant you access to bonus miles. Hotel credit cards can also be a way to earn points that you can redeem for hotel accommodations.