Friday, January 1, 2010

Maximizing Your Credit Card

No, by the title I don't mean MAXING OUT your credit card. I mean taking full advantage of what your credit card can do for you.

This post is for people with iron control over their impulses. It is not for everyone. It is especially not for people of low income who cannot resist buying things whenever an opportunity presents itself. If that describes you, then a credit card isn't for you and if you have one, get rid of it.

Most credit card companies offer accounts that carry no charges, no interest and no annual fees, provided the outstanding balance on the card is cleared by each month's due date. For people of low income, this is the only kind of credit card you should have. Then apply the advice below.

Dos and Don'ts
NEVER buy anything on your credit card that you haven't the money to pay for when you make the purchase. DON'T RELY on getting money that is owed to you, in time to make the payment. That isn't how people of low income (anyone, in my view) should be using their cards.

USE the credit card to buy goods and services that you would buy anyway with cash. USE it to earn reward points that can be redeemed either for gift cards or for items that you otherwise wouldn't be able to purchase.

CLEAR THE BALANCE every month by the due date. Otherwise, you can get into serious trouble very quickly.

Haven't a credit card?

Not a problem. Credit card companies want people to have their cards and use them. Ergo, they make it really easy to get one. Even people of extremely low income and without a credit record can obtain a credit card with a $500 limit, provided they have an address. I did.

On returning to Canada at age 50 after a three-year absence, I had to start all over again establishing my credit rating. Before leaving, I'd had a pristine credit record that I'd built up over decades and an old credit card limit that had risen well into five figures. Yet there I was, three years later, re-acquainting myself with my favourite financial institution, the same one I'd used for most of my working life - and being presented with a piddling $500 credit card.

Clearly, I had some work to do. I used that card at every opportunity and paid off the balance each month. In the meantime, as before, the credit limit began its incremental rise and I accumulated reward points.

Benefits of Reward Points
I prefer to redeem my points for gift cards. Recently, I cashed in 9,000 points in exchange for two Sears cards that totalled $75. With gift cards, you can buy goods or services, sell them at a discount, or re-gift them. If you use your gift cards to buy goods or services, multiply your benefits by waiting until the items are deeply discounted.

In other words, if you use your credit cards wisely, you can earn yourself a bit of money or get items you wouldn't be able to afford otherwise.

The key is discipline; if you've any doubt about your ability to control buying impulses, then don't get a credit card.

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