Trending Now :

What Does the Hot Inflation Report Mean for the Housing Market How Do You Build Wealth: Invest in Yourself Times Up for Programmed Money Biggest Financial Crimes: Countrywide Quantitative Tightening, Inflation, & More The Stock Market Is On Sale Investors Need to Netflix and Chill Credit Card Fixed-Interest Loans: Explained Are You Money Smart? Build Your Credit for Free Filing Your Taxes in 2022 Credit Cards that Offer 2% Cashback on All Purchases Navient Ordered to Cancel Student Loans U.S. Mortgage Interest Rates Soaring Two Big Banks Cut Overdraft Fees 2022 IPO DRAFT CLASS: Ranking the Top 10 Prospects Re-Drafting the 2021 IPO Draft All You Need to Know about Buy Now Pay Later companies Credit Card Sign-Up Bonus or SUB The Best Credit Card for the Middle-Class Make An All-cash Offer with No Cash Capitalism Always Ignores Politics All You Need to Know about the Financial crisis of 2007-2008 American Families Face Serious Rent Burden Savings Is An Expense You Can’t Build Generational Wealth If You Are Broke IT’S OFFICIAL: Robinhood is a Meme Stock All You Need to Know About Biden Mortgage Modifications & Payment Reductions Apple Card 2nd Year Anniversary: Should You Get It Now Wells Fargo to Pull Customers Personal Lines of Credit The Rise of Individual Investors The US Housing Market Is Booming. Is a Crash Ahead? Financial Literacy: How to Be Smart with Your Money Non-Fungible Token (NFT):EXPLAINED SKYROCKETED CEO PAY & LONG LINES AT FOOD BANKS Amazon Workers Want to Unionize Another Major City Piloted Universal Basic Income The New Bubble: SPACs SUBMIT YOUR PPP ROUND 2 APPLICATION BEFORE MARCH 31ST Robinhood-GameStop Hearing & Payment for Order Flow Guess Who’s Coming to Main Street Democratic Senators Say No to $15 Minimum Wage BEZOS OUT! President Biden Most Impressive Act Went Unnoticed: CFPB Biden $1.9 Trillion Stimulus Package 2021 IPO DRAFT CLASS: Ranking the Top 10 Prospects $25 Billion Emergency Rental Assistance NO, TESLA IS NOT WORTH MORE THAN TOYOTA, VOLKSWAGEN, HYUNDAI, GM, AND FORD PUT TOGETHER AMAZON TO HAND OUT ITS WORKERS $300 HOLIDAY BONUS Where Does the American Middle-class stand on Student Debt Relief? Joe Biden’s Economic Plan Explained 4 TYPES OF BAD CREDIT REPORTS AND HOW TO FIX THEM What Is the Proper Approach to Not Buy Too Much House? FISCAL STIMULUS PLANS STILL IN ACTION How to Pick Investments for Your 401(k) 10 Simple Ways to Manage Your Money Better All You Need to Know about Reverse Mortgage All You Need to Know about Wholesale Real Estate Credit card Teaser Rates AVERAGE CREDIT CARD INTEREST RATE SURGES TO 20.5 Percent Trump Signs 4 Executive Orders for Coronavirus Economic Relief The Worst American Economy in History WHY CREDIT CARDS MINIMUM PAYMENTS ARE SO LOW? 10 BIGGEST COMPANIES IN AMERICA AND WHO OWNS THEM White House Wants to End the Extra $600-A-Week Unemployment  10 Countries That Penalize Savers FEWER CREDIT CARD BALANCE-TRANSFER OFFERS ARE IN YOUR MAILBOX Private Payrolls and the Unemployment Rate SHOULD YOU BUY INTO THE HOUSING MARKET RESILIENCY? WILL WE GET A SECOND STIMULUS CHECK The Child Tax Credit and Earned Income Tax Credit THE RETURN OF BUSINESS CYCLES Should You Request a Participant Loan or an Early 401(k) Withdrawal? Homebuyers Should Not Worry about Strict Mortgage Borrowing Standards The Potential Unintended Consequences of Mortgage Forbearance All Business Owners Need to Know about the Paycheck Protection Program 10 MILLION UNEMPLOYMENT CLAIMS IN TWO WEEKS HOW WILL THE GLOBAL MIDDLE-CLASS RECOVER FROM A SECOND ECONOMIC RECESSION IN A DECADE? WILL U.S. CONSUMERS CONTINUE TO SPEND? HOW’S YOUR 401(k) PRESIDENT TRUMP SIGNS $2.2 TRILLION CORONAVIRUS STIMULUS BILL MIDDLE-CLASS NIGHTMARE: MORE THAN 3.3 AMERICAN FILED FOR UNEMPLOYMENT CLAIMS IN THE US LAST WEEK. LAWMAKERS AGREED ON $2 TRILLION CORONAVIRUS STIMULUS DEAL CORONAVIRUS STIMULUS PACKAGE FAILED AGAIN IN THE SENATE APRIL 15 (TAX DAY) DELAYED DEMOCRATS AND REPUBLICANS DIFFER ON HOW $2 TRILLION OF YOUR TAX MONEY SHOULD BE SPENT YOU CAN DELAY MORTGAGE PAYMENTS UP TO 1 YEAR, BUT SHOULD YOU? 110 Million American Consumers Could See Their Credit Scores Change The Middle-Class Needs to Support Elizabeth Warren’s Bankruptcy Plan The SECURE Act & Stretch IRA: 5 Key Retirement Changes 5 Best Blue-chip Dividend Stocks for 2020 9 Common Bankruptcy Myths 401(K) BLUNDERS TO AVOID Government Policies Built and Destroyed America’s Middle-Class & JCPenney Elijah E. Cummings, Esteemed Democrat Who Led the Impeachment Inquiry into Trump, Dies at 68 12 Candidates One-stage: Who Championed Middle-Class Policies the Most WeWork: From Roadshow to Bankruptcy Stand with the United Auto Workers Formal impeachment Inquiry into President Donald Trump America Is Still a Middle-Class Country SAUDI OIL ATTACKS: All YOU NEED TO KNOW THE FEDERAL RESERVE ABOLISHED BUSINESS CYCLES AUTO WORKERS GO ON STRIKE Saudi Attacks Send Oil Prices Spiraling REMEMBERING 9/11 What to Expect from the 116th Congress after Their August Recess Should You Accept the Pain of Trump’s Trade War? 45th G7 Summit-President Macron Leads Summit No More Upper-Class Tax Cuts Mr. President! APPLE CARD IS HERE-SHOULD YOU APPLY? THE GIG ECONOMY CREATES A PERMANENT UNDERCLASS 5 REASONS IT’S SO HARD FOR LOW-INCOME INDIVIDUALS TO MOVE UP TO THE MIDDLE CLASS ARE YOU PART OF THE MIDDLE CLASS? USE THIS CALCULATOR TO FIND OUT? WELLS FARGO IS A DANGER TO THE MIDDLE CLASS The Financialization of Everything Is Killing the Middle Class
Use Credit Cards Wisely
American Middle Class

How to Use Credit Cards Wisely

The estimated reading time for this post is 177 seconds

Lenders want you to be creditworthy before they can finance that house, car, or new business, and the FICO credit score is how 90% of them determine that creditworthiness.  Credit cards, secured or unsecured, are among the best ways to build a good credit score.

FICO Score

FICO credit score is a three-digit number based on information in your credit reports.  Your mortgage, credit card, and auto loan payments, and other lending products tradelines in your credit reports.  

Rental payments, utility bills, and many other consumer non-discretionary accounts are not in your reports.  Equifax and Transunion are the three major credit agencies that compile information and maintain individual credit reports.

 

What’s in Your FICO Scores

Use Credit Cards Wisely

Use Credit Cards Wisely

What Is a Good FICO Score

Pay Cash for  Everything 

Many personal finance advisors and coaches recommend their clients ditch out credit cards and pay cash for everything because they believe that all cash transactions will reduce frivolous spending.

That belief is half-true.  Credit card users who take time to work on a personal finance budget take control of their finances.  They only swipe their credit cards for budgeted nondiscretionary expenses.

Paying cash for significant financial transactions such as a home, car, and other big-ticket items is not something that most low and middle-income Americans can afford to do.  

So, building an excellent credit profile has to be part of each American holistic financial planning.  In this era of financial technology (Fintech), paying cash for everything can be a significant financial mistake. 

The Dangers of Credit Cards

Use Credit Cards Wisely

Use Credit Cards Wisely

Without a solid budget, credit card users will overspend, and those who opt in to pay the minimum payment can find themselves in debt for decades.

Based on the above screenshot, it will take a credit user nearly 20 years to pay off her credit card balance of  $4,532.72, resulting in $8,770 worth of interest expense with a 12.99 annual percentage rate (APR)

If the credit card user continues to use the card, the interest expense will be higher, and the pay-off date will be longer. 

How to Use Credit Cards Wisely

Use Credit Cards Wisely

You can reduce or eliminate the interest expense if you use credit cards wisely.  Credit card issuers love users who maintain an outstanding balance, continue to swipe and make the minimum monthly payment.

Pay Your Balance in Full Each Month

If you pay your credit card balance in full every month, you pay a $0.00 interest charge on purchases. 

So instead of paying cash for everything, you can work on a personal finance budget and put all your non-discretionary expenses on a credit card and pay that balance in full on or before the payment due date each month.

Use Credit Cards Wisely

Use Credit Cards Wisely

If you pay the balance in full each month, your total fees and interest charges should be $0.00 by year-end. 

A little-known fact about paying your credit card in full each month, it’s a form of a short-term interest-free loan.

Conclusion

Credit cards are an expensive and dangerous product.  However, if you learn how to use them wisely,  you can build an excellent personal credit profile and have a perfect FICO score, which is how 90% of them determine creditworthiness.

You need to work on a personal budget to itemize your non-discretionary expenses, put those expenses on a credit card, and pay that card balance in full each month. 

BACK TO TOP
Author

Senior Accounting & Finance Professional|Lifehacker|Amateur Oenophile

Continue Reading
2 Comments
Advertisement
American Middle Class / Sep 26, 2022

How Do You Build Wealth: Invest in Real Estate

The estimated reading time for this post is 436 seconds How Do You Build Wealth: ...

American Middle Class / Sep 14, 2022

What Does the Hot Inflation Report Mean for the Housing Market

The estimated reading time for this post is 100 seconds The benchmark 30-year fixed mortgage...

American Middle Class / Sep 11, 2022

How Do You Build Wealth: Invest in Financial Assets

The estimated reading time for this post is 350 seconds How Do You Build Wealth: ...