Everyone has heard it at some point; the old saying of a person has taken out a credit card just to build credit. Sure it is a valid point, but most people are unaware of the other options they can use to build credit. Sticking with credit cards, they have perks such as keeping your cash flow open when you’re in a bind or allowing you more buying power when necessary. Throughout this article, we are going to go over the pros and cons of having a credit card and how to properly use it.
A credit card can give you increased buying power for items that may deplete your cash levels. Large purchases such as a new refrigerator or dryer can often be expensive, but most stores offer credit cards with special financing options for those who apply. The trick here is to not leave those large balances on your credit card for long as they might begin accumulating interest, which is something you never want to do. If you want to avoid interest, ensure there is a period of time that no interest is accumulated, and then pay it off within that window.
A popular and valid reason to have a credit card is to build credit, which some lenders look at with a keener eye than others. The important factor in building credit with your card is you have to purchase items using your card to build a balance. Once the statement cycle hits, then you pay it off, showing that you are able to handle debt. If you pay the debt off before the cycle, it will be as if you never had anything on your credit card at all.
There are alternatives to using a credit card to build credit. This includes a car note, mortgage, or something simple as a utility bill. Be sure to research if you’re ready for a credit card and are able to maintain a healthy spending pattern as this can lead to an unhealthy financial future.
Lastly, people have credit cards on hand for emergencies. This can come in handy if you’re out of town and away from your normal banking centers. Combined with the buying power, this can get you out of most situations and give you time to pay off the emergency. However, do not let this become a habit because it can be quite easy to rack up a bill that can surpass your income. If you find yourself in this situation, an alternative is to have an emergency fund of a couple thousand dollars stashed away but readily available.
Overall, a credit card can certainly help you build credit, which lenders use in their decision-making. However, if used incorrectly, it can make for a rough financial future. Some tips are always pay off balances after the statement cycle hits, watch the interest free periods, and always spend wisely because you will have to pay it all back.