How to Have a Healthy Relationship with Credit Cards

Hey guys! I’ve teamed up with Navy Federal Credit Union and their MakingCents website to help spread some personal finance awareness with an education post on credit card use. Hope you enjoy! ~M$M

Credit cards. Scary, right? 🙂 Not really. There’s a lot of talk out there in the personal finance community on both extreme sides of credit cards. Some people use them to such a fault that it creates a horrific financial situation and years of high interest debt. Others think that they’re pure evil and opt for cash only. I’m one of the personal finance bloggers that actually likes them.

Just for a bit of background, my wife and I put almost all of our purchases on credit cards. Dinner, groceries, movies – you name it! We also live completely debt free and have never paid a dime in interest charges.

I truly believe that there is a good balance to be found with credit cards. Whether it’s points, developing responsible money management, or even a better credit score; there are definitely some advantages to paying with plastic over cash sometimes!

Here are some ways you can have a healthy relationship with credit cards:

Use Them to Build Your Credit

I haven’t brought this up on the site too much (mostly because it’s embarrassing), but once upon a time I actually had a horrific credit score. After I graduated college, one of my grants turned into a loan because I didn’t teach in a low socioeconomic school district.

Like a lot of people unfortunately experience from time to time, I had a major illness in my immediate family and just missed a payment. I was absolutely crushed. Instead of paying an expensive credit repair company, I decided to use my credit card to raise my credit score back up by aggressively manipulating my utilization rate (the amount of credit you use versus how much you qualify for).

For example, if I had a $1,000 credit limit, I would keep a $100 balance on my card to maintain a 10 percent utilization rate. I waited until the day after my statement was finalized and made the $100 payment in full to avoid interest charges.

Waiting until the day after allows your card company to report your utilization rate to the three major credit bureaus and show up on your credit report! This strategy helped me go from a 540 credit score to a high 700’s score that I have currently.

Use Them to Stay Safe

As we all know, there are a lot of crooks out there. Advances in technology are helping them commit crimes even more, but credit card companies actually do a great job of helping consumers keep their personal information AND money safe.

Debit cards can be an incredible tool to avoid debt, but they don’t always carry the same consumer protection that credit cards do. Here are just a few of the advantages of using your credit card for everyday purchases:

EMV Chip Reader Technology: You’ve probably noticed the chip cards that have been rolling out across the country lately. While it still takes a little longer than the old swiping routine did, it is MUCH safer from a fraud/theft standpoint. Magnetic strips contain “static data” from all of the swipes on your card, which is pretty easy for crooks to use when creating counterfeit cards. The new EMV cards store every transaction’s data separately, which makes it much harder to replicate.

Zero Liability Purchase Protection: The major credit card companies offer killer consumer protection for transactions made on credit cards. This protection applies to ALL transactions (in-store, online, over the phone, etc.). If you think something suspicious has happened, just give your card company a call and you won’t be held accountable for fraudulent charges.

Fraud Alerts: I’ve dealt with this first hand. After going out to eat at a restaurant, someone ordered $150 of pizza with my credit card information! Luckily, a representative from my card company called me immediately, told me about the order (we both laughed), and then denied the transaction before it ever hit my account. That obviously left a lot of people hungry, but my bank account full! 🙂

Use Them for Points

Easily my favorite one on this list! Because my wife and I use our credit card for all of our daily purchases, we tend to rack up points for travel pretty quickly. In addition to the credit boost and the added security, getting what amounts to free money every few months doesn’t hurt. 🙂

Ultimately … Do What’s Best for You

One of the biggest tricks to excelling at personal finance is understanding your comfort zone. If you want to switch over to credit cards like my wife and I have…that’s totally cool. If not, that’s cool too. Want another resource for tips on credit cards or any other personal finance topic? Head over to MakingCents and take a look around!

Live differently. Your bank accounts will thank me later. ~M$M

 

This is a sponsored conversation written by me on behalf of Navy Federal Credit Union. The opinions and text are all mine. Navy Federal is federally insured by NCUA.