Making the Most of Credit Cards

Chances are you have a way to pay with plastic. But do you have a credit card? Despite the ubiquitous presence of them, a recent poll shows that 63% of Millennials don’t have one.¹

But credit cards serve an important purpose. Here are some things to know about them.

How Credit Cards Work

Credit cards attach to a line of credit and work like a loan. Each time you make a purchase, you use up a portion of the credit line and create a balance. When you pay the balance, you free up whatever you paid back and can use it again.

If you pay the balance off in full by the due date, you don’t pay interest. If you don’t pay it off, any amount left will be charged interest. The annual percentage rate (APR) varies depending on the card.

Establishing Credit History

Using your credit card and making on-time payments helps you to establish a credit history. The longer you keep the credit line open and demonstrate good habits, the better your history becomes.

Why does this matter? Your credit history shows what kind of payments you can handle, how responsible you are with debt, how much debt you have and other information. This helps creditors, landlords and even employers assess you. Credit cards can be a key first step in this lifelong “report card.”

Credit Cards At-A-Glance

Credit cards can:

• Establish credit history.
• Act as a safety net by paying for emergencies, or tying you over when cash is tight.
• Offer incentives. Some give reward points for travel, cash back and other goods.
• Give you a grace period. There is usually about 25 days to pay off your debt in full to prevent any interest charges.
• Protect you. If you have fraudulent charges or dispute the quality of something, your credit card might offer protection.
• Open the door to opportunities. Some offer “no interest” or “low interest” promotions.
• Offer perks. They sometimes include insurance protection and other benefits.

Be aware that credit cards can also:

• Make it easy to build debt.
• Burden you with interest.
• Harm your credit if you make late payments.
• Harm your credit if you keep the balance at or near the maximum limit.
• Cost more to use when merchants charge for the convenience (it costs them more than when you use a debit card).
• Charge annual fees.

Smart Practices

When using your credit card, consider the following best practices.

• Try not to use your credit card for everything. Keep it for emergencies, situations when you’re short on cash and to build credit.
• Do your best not to max out your card. Your credit score evaluates the percentage utilized of your credit line(s). The general recommendation is to keep your usage under 30%. So if you have a $1,000 limit, try to keep your balance under $300.
• Try to pay your credit card balance off every month (on time). This will:
  • Build good credit
  • Prevent interest charges
  • Prevent late-payment charges
• If you can’t pay off the entire balance, do your best to pay more than the monthly minimum.

Pick a Card, Any Card

If you’re considering a credit card, be sure to check out County Federal’s. We’ve got a winning hand of cards with a variety of benefits.