This credit card guide will outline how to use a credit card responsibly and how you can find the best fit for you. After reading this guide, you’ll feel more confident in choosing the right credit card for your financial situation.
Reasons to Get a Credit Card
Credit cards are a great way to build your credit, help you pay off debt, or help you finance a big purchase. However, credit cards can also be a slippery slope if you’re not careful. It’s easier to spend higher amounts of money because you don’t have to pay it off right away.
This is why it’s important to understand how to use a credit card responsibly so you can enjoy the benefits and maintain a good credit score.
Understanding Credit Card Terms
When you start to compare different credit cards and the options available, there will be a lot of new information and acronyms. These are some of the most important terms you should know so you can feel confident you’re choosing the right credit card.
Some credit cards will require an annual fee or a sum of money you must pay every year for as long as you have the credit card. You may see promotions that eliminate an annual fee for the first year. Diamond’s Visa Credit Cards have no annual fee.*
This is a common term used when defining the percentage you’ll get back with every purchase. The percentage is used to help compare different credit cards. A higher rewards rate is great, but it doesn’t always mean it is the best card for you. Consider the whole.
Companies may offer an intro rate to help you get started. Typically, this is a lower or discounted rate that is only for new members and is only offered for a short period of time.
This acronym stands for annual percentage rate and helps you understand credit card interest. Purchase APR applies interest to every purchase you make with your credit card, this is the most common type of interest you’ll see with your credit card. Diamond’s Visa Cards have some of the lowest floor rates for credit cards that go beyond an introduction offer. If you come across credit cards with low introductory offers, be sure to look at what your rate will be after the introduction period.
How to Choose the Right Credit Card
Now that you have a better understanding of interest rates and common credit card terms, it’s time to talk about different options.
Before making any big financial decisions, it’s best to analyze your current financial health. Also, ask yourself what the purpose of this credit card is. You may be looking to gain financial rewards with your purchases, build your credit score, or pay off existing debt.
Rewards Credit Card
A benefit to getting a rewards card is you can get money back or certain rewards depending on the card type. This type of credit card may also help motivate you to pay off your debt on time so you can gain the full benefits of these rewards.
A majority of rewards will include getting cash back from your purchases or earning points that can turn into cash. However, some may have discounts for you to travel or shop at your favorite retail stores.
Secured Credit Cards
This type of credit card serves well for someone looking to build their credit score and doesn’t intend to make large purchases with the card. A secured credit card is supported with an initial cash deposit so they have a more flexible approval process. Compared to unsecured cards, these are more accessible for someone just starting their credit journey.
Retail Credit Cards
As mentioned above, your favorite stores likely have a credit card associated with them. This type of card usually has incentives to shop at that specific store and when you make purchases you get benefits in return.
You may only be able to use this credit card to make purchases at that store or affiliated stores. Due to this, it might not be the best card for you to finance a big purchase, but it can help build your credit history and score.
Business Credit Cards
In order to separate business and personal purchases and credit, you, if you’re a business owner, or your employer, may decide to open a business credit card account. This is a great way to stay organized and know what you’re spending on your business versus what you’re spending in your personal life.
Five Ways to Use a Credit Card Responsibly
The final part of this credit card guide highlights five tips we recommend in order to not get carried away with a new credit card. These recommendations can be used across all financial situations and can ultimately help you become financially smarter.
1. Keep Track of Monthly Payments and Statements
Just like any financial situation, you first want to identify a budget and spending limit so there’s less risk of you overspending and hurting your credit score. It’s important you have a solid understanding of how much you’re spending on each credit card so you can be sure you’re staying within your budget.
One of the best ways to keep track of your spending and monthly payments is to set up online banking access. This means you’re able to check your statements whenever you want and see how much money you’ve spent during that time period.
You can also keep track of monthly payments and your budget through a financial app. Especially if you’re using a credit card to complete long-term goals or finance a bigger purchase.
2. Avoid Too Many Impulse Purchases
When you make a purchase with your credit card, you don’t immediately see the money come out of your account, which can sometimes lead to making impulsive purchases. To help avoid this, you can set boundaries for how and when you use your credit card.
If you’re looking to finance a bigger purchase, maybe you only use your credit card for this. If you’re seeking a stronger credit score and need to consistently pay monthly statements in full and on time, you only use your credit card for gas or groceries.
3. Set Spending Limits
If you set lower spending limits on your credit card initially, it will help you stay within your budget. Your card will automatically decline if you go over your spending limit, so you will have a very clear boundary.
If you’re just starting with your credit card journey, it’s best to have a spending limit under $1,000 so you can ensure you’re not going overboard. You can base your spending limit on how much you’ll be able to pay off at the end of each month. That way you won’t accrue interest on unpaid credit card statements.
4. Do Your Research
Before opening a credit card account, do your research and make sure you’re aware of all the benefits, interest rates, and payment options available. As stated before, it can negatively affect your credit score if you open multiple accounts within a small time frame. So, make sure you’re opening an account that works best for you.
Use this credit card guide to start your research and a basis for understanding credit cards and how you can use them to your advantage.
5. Use Your Credit Card as a Budgeting Tool
Ultimately, you should use your credit card to further advance your financial goals rather than put you in tough situations. Combine everything you learn from your research and create a budget alongside your credit card.
This is where knowing the difference between good debt and bad debt will be important. Credit card debt is considered bad debt, so it’s crucial to know how to use your credit card wisely and budget appropriately each month.
Once you have an idea of what type of credit card you want, and how you can use it to your financial advantage, you can start to research and understand credit card interest rates and how your credit score is calculated.
Now that you have a better understanding of how to use a credit card responsibly, explore the benefits of Diamond’s Visa Credit Card.