Credit cards are a large part of my life — but they definitely didn’t used to be.
In fact, my credit card journey started 2 years after I graduated from college, when I got my first job as a personal finance writer. Writing about credit and money management not only helps me better advise others but also helps me demystify a lot of the details for myself.
Honestly, it still took me a long time to get past some of the negative connotations tied to credit cards, in particular. But the old saying “Knowledge is power” definitely applies here.
Today, I try my hardest to empower others to use credit cards as tools to help them meet financial goals, whether their goal is to have a nest egg, to travel more, or to purchase a home.
Now, I know what you’re thinking: “It’s pretty hard to feel confident about a lot of things right now, let alone something as confusing as credit.”
Believe me, I get it. We’re all doing the best we can to meet our needs every day. But understanding credit is a vital financial health need that requires our attention. So let’s take this step by step.
In the world we live in, building credit is an essential part of financial independence. Two terms you should be aware of up front are “credit report” (kind of like your financial resume or history of credit use) and “credit score” (the score that’s calculated based on what’s in your credit report).
Your credit report is used in various ways to determine if you can be approved for things like mortgages, car loans, small business loans, and more. Some apartment complexes and landlords may even require a credit check in order for you to apply.
Bottom line: The better your credit score is, the more manageable this whole adulting thing is.
And the easiest way to build and maintain a healthy credit profile? Credit cards.
If you were raised in a home similar to mine, you might raise your eyebrows at the idea of credit cards being a good thing. Credit cards were considered inherently evil to the point that mail offers for rewards credit cards were automatically trashed. We grew up on Dave Ramsey’s teachings that nothing good ever comes from credit cards. “They’re a trap — a debt machine that will ruin your life!”
You get the point.
If you happened to share that mindset, talking about credit cards or credit in general can be overwhelming and a bit scary. The good news is that most of those myths are just that: myths.
Don’t get me wrong — credit cards can be harmful when you aren’t careful and diligent with your budgeting. But they can also really work in your favor.
I got my first rewards credit card just over 2 1/2 years ago. In addition to improving my credit score, I’ve taken two international trips thanks to the rewards I’ve earned by using that card. I’ve added a few other cards to my wallet and will be using the rewards earned from them to take a trip to the Philippines as soon as international travel is safe again.
I pay my credit card bills every month (my cards actually help me budget, believe it or not), I have no credit card debt, and my credit score is high enough that it’s landed me a great interest rate on my current car loan.
Using credit cards responsibly
- Adopt the debit card game plan. Make purchases with your card only if you have money to pay the bill. Overspending destroys your budget and leads to credit card debt.
- Make full on-time payments only. Late bill payments negatively affect your credit score, and partial payments can lead to late fees and higher interest (something you definitely shouldn’t be interested in).
- Keep an eye on credit utilization. This is the ratio of how much credit you use each month according to how much of it you have. Posting a lower utilization ratio (below 30 percent) is considered beneficial for your credit score.
- Stick to cards you know you’ll use. Especially if your card carries an annual fee. You’ll get the most out of your cards’ rewards and perks by using the cards. There’s no use in having a tool if you can’t use it.
When you start thinking of a credit card as a financial health tool to wield rather than a financial hole to avoid, you can open a lot of the possibilities that come with responsible card usage.
Last year, I earned enough points from using my credit cards to take a trip to Croatia. It was a 2-week trek with my childhood best friend, starting in Zagreb and winding our way down the coastline to Dubrovnik.
A plane ticket that normally would have cost close to $700 after taxes and fees cost me only 58,000 credit card rewards points. The best part is it took no additional effort. I earned these points by making regular credit card purchases I normally make.
The experiences I had in Croatia — exploring old towns with a kind local woman as our guide, hiking through the UNESCO World Heritage Site Plitviče Lakes National Park, swimming in the crystal blue waters of the Adriatic Sea — wouldn’t have been possible without the rewards I earned with my credit card.
Since taking that trip, I’ve begun digging deeper into the ways I can leverage my cards, earning more points and saving enough money to start investing more outside of my 401(k).
When you’re first jumping into credit card rewards, think about both the processes of building your credit score and the benefits of cashing in on sweet perks.
Pro tip: Even though credit cards are cool, you don’t want to go from having none to having 19 overnight.
I’ve been writing about credit cards and using them daily for more than 2 1/2 years now, and I still have only a few. You don’t have to go from using cash and your debit card to rotating four different credit cards on every single purchase.
Start with a simple card that doesn’t require an annual fee and allows you to earn cash back for using it. No annual fee means you don’t have to worry about spending a certain amount to make having the card “worth it.” And cash back is the easiest way to save money without juggling points redemption options, transfer ratios, and other technical terms that might give you anxiety.
Don’t stress about learning all the lingo or memorizing every American Express transfer partner (I write about this stuff for a living, and I couldn’t even do that) in order to start building your credit score and earning rewards.
This is the most important part of the conversation around credit and credit cards. While cards can be a valuable piece in the financial health puzzle when used responsibly, they can be dangerous if you see them as “free money” or a replacement for an emergency fund.
I actually use my credit cards as a way to budget. Basically, I have different credit cards that earn rewards on different purchases, so I can use them to help me budget in those categories.
For example, I use my American Express Gold Card for groceries and restaurant spending. I use it as a way to budget my spending in those categories. When my bill hits a certain threshold, I know I’ve hit my monthly budget on those expenses.
A credit card should be used the same way as a debit card. If you don’t have the money in the bank, don’t use your credit card for the purchase if you can help it. That’ll save you money on interest while helping you keep your credit score high.
Credit (and personal finance in general) has long been a topic that makes some people squirm when it comes up in conversation. Don’t let that stop you from starting your own journey and finding supportive people you can have frank conversations with about it.
I’m lucky that I work with other avid credit card users who love to talk about things like rewards, tips and tricks, credit score changes, and budgeting. But you don’t have to be an expert to feel confident about exploring credit and credit card benefits. There’s a lot of information available. Run at your own pace.
Madison Blancaflor is a credit cards expert and travel enthusiast. You can find her sharing credit card news and advice on The Points Guy, or follow her travel adventures (and inspirations) on Instagram.
