6 smart ways to use your credit card

25 April 2019 by National Bank

Wherever you may be – at a festival, at the new bistro around the corner, or travelling across the ocean – a credit card can be a handy tool and help you avoid hassle, as long as you use it in a smart way. Here’s a look at how you can take advantage of one.

1. Access emergency funds if you don’t have a line of credit

A line of credit can serve as an emergency fund. However, this type of credit is not available to everyone. If you lack such credit, a credit card can help you out. But since the interest rate on the unpaid balance of a credit card is higher than the rate on a line of credit, use it carefully and properly.

2. Make purchases more easily

Without a credit card, it is practically impossible to book a flight or make a purchase of any kind online. Although you can make payments through platforms like PayPal by linking them to your bank account, this payment method is not accepted everywhere.

There are also situations where it’s easier and faster to pay with a credit card, allowing you to leave your wallet and cash at home. For example, you can pay with a credit card at a festival, a fair or a pop-up shop thanks to mobile and electronic payment technology without having to handle any cash, thus reducing waiting times in checkout lines (only if everyone’s paying by card!).

What’s more, some businesses – like restaurants, coffee shops, hotels, or bike or car rental companies – require a credit card to pay, and many of them don’t even accept cash anymore.

3. Benefit from loyalty programs

If your credit card gives you points, travel discounts and other advantages like cashback rewards, using it can become beneficial. However, you have to use it a fair amount before you can reap the benefits, all while making sure you’re paying off the card regularly. You need to avoid carrying an unpaid balance, since the interest charges can quickly cancel out the card’s advantages. To better take advantage of your credit card, you can deposit a lump sum on the card and then use it for all your purchases. This way, you’ll accumulate bonus points and cashback rewards on eligible expenses faster, and you’ll benefit from your card’s perks without putting yourself in debt or ruining your credit.

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4. Consolidate your purchases and your bills, and make only one payment

Managing finances and bills to pay off – cell phone, rent, streaming service subscription, etc. – can get complicated quickly. This task can be made simpler if you pay for all your purchases with a credit card. For example, if you pay for your monthly gym membership or your electricity bill via preauthorised payments, then you only need to make one payment per month instead of taking care of several bills one by one.

5. Manage your spending better

Making a budget and keeping track of your spending are sure ways to manage your money. When you pay in cash, it’s easier to forget your purchases. By using your credit card for all your purchases, you can view your expenses on your online statement, a valuable tool for understanding where your money goes. In addition, statements often list the type of purchases made, which you can use to easily calculate your total spending in different categories.

6. Build up a credit file

When it comes to lending you money, financial institutions and lenders consult your credit file to assess your ability to repay the loan. They analyse your credit file before finalising the amount for the loan. The better your file, the easier it will be for you to borrow, and at better interest rates. If you haven’t made any large purchases or major investments yet, such as buying a house or opening a registered retirement savings plan (RRSP), then you don’t have a credit file or a credit score. A credit card is an excellent way to build a credit file and show your reliability. If you have a credit card and use it responsibly, you are laying the foundation to build a good credit rating.

Expert advice

There are good and bad ways to use credit cards. “You should never repay one card with another. Sometimes, it’s better to get a loan rather than use a credit card. And if you have trouble managing your compulsive spending, leave your credit card at home,” recommends Samya Namir, Director of Small Business at National Bank.

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