Today I’m going to be talking about credit cards. I use a credit card and even though I pay all of my outstanding bills in full every month, I still think that it’s very important to have a credit card. In this article, I am going to be sharing with you, why you need a credit card in the first place, how to use your credit card to build your credit score, how to get free cash Back every month, how to weed out all the gimmicky credit cards and pick out the best credit card for you and then finally, how to beat the credit card companies or the banks in their own game.
Firstly, are credit cards good or bad? In my opinion, a credit card itself is neither good or bad. It is just a tool, but it depends on who’s using it. So if you think that you cannot control your spending, if you have a credit card, then maybe getting a credit card is not a good idea. However, if you’re like me, where I can control my spending and I pay all my outstanding bills in full every month, the banks are not actually making any money out of me, but I’m reaping all the rewards of a credit card, so pretty sweet deal. So this article is supposed to help people to financially benefit from having a credit card rather than using a credit card to drive them more into debt. So it all depends.
So why do I think I need a credit card, even though I pay all my outstanding dues every month. The first one is it’s immediate access to emergency money. Number two, a lot of these credit cards have benefits that your debit card doesn’t, for example, cash back. You can redeem points. Sometimes you can get free perks. Like if you use your card to buy plane tickets, you get free travel insurance.
The last one is that you can use your credit card to build your credit score. If you have a credit card, all the history of you repaying back all your debt will be recorded by your central bank, so there’s both good and bad about this. The bad thing is: if you don’t pay your bills on time, it will be written in paper how bad of a pay master you are.
However, if you pay all your bills on time, your credit score report will look good. A good credit score report helped me get a mortgage when I was applying to buy my house. So from the bank’s point of view, I could be considered a good customer to be lending money to. If you don’t have a good credit score report, maybe the bank will be reluctant to give you the loan in the first place or they could be giving you the loan but they’re going to charge you a higher interest.
Now that you know why you need a credit card, let’s move on to how to choose the best credit card for you.
How to choose the best credit card
No annual fees
I’m going to show you what other benefits that I personally look for in a credit card. First, annual fees. A lot of credit cards charge annual fees and to me I don’t see the point of it. For example, some cards charge £30 a year or more. This to me makes no sense. There’s no benefit that can justify these annual costs, in my opinion.
cash back credit card
The second benefit that I look for is cash back. A cash back credit card means every time you spend money you can get a small percentage of that spending amount refunded back into your account every month.
Personally, I like to use a credit card that I am already a customer with the bank, and the reason for that is because it’s easy for me to monitor everything. This is personal. I just like to have everything in one centralized location.
In this scenario, every time you spend money on your card you’re going to get a reward point. So when you accumulate enough reward points, you can redeem those points for some sort of gift or product.
Next is bonus perks
For one of my credit cards, if I buy a flight ticket and charge it on the credit card, I get free complimentary travel insurance. This may not sound like too much, but back in the days before all the pandemic, I used to travel a lot and every time, I want to travel overseas, I have to buy separate travel insurance or I have to get like an annual travel insurance plan. However, if I buy those flight tickets using the credit card, I get free travel insurance.
How do credit cards actually make money? Your credit card company makes money by charging you interest on debt that you are not able to pay from the last month. For example, let’s say this month – you’re charging your credit card, maybe £2,000 in total and at the end of the month I only paid, let’s say, £500 off that debt. So I have an outstanding of £1,500 right, so that 1,500 will be carried forward to the next month, will be charged daily interest and that’s how the credit card company makes money.
But here’s the thing: if you pay your debt in full every month like I do, the banks are not charging me any interest whatsoever, I’m reaping all the rewards of having a credit card, but the banks are not making any money of me so pretty nice.
So there you go. I am going to recap one last time the four steps to pick the best credit card that will financially benefit you.
Number one, you got to pick the best credit card that suits your lifestyle. So, in my case, I want something that has no annual fees. I want something that pays cash back and it’d be nice to have extra benefits like the free travel insurance.
Number two, depending on the terms and condition of your card, always charge your card to get those benefits. So, for example, mine gives five percent cash back on the weekends. So I like to lump all my spending on the weekends to maximize that cash back and if I want to buy flight tickets, for example, I always charge it on this card, so I would get the travel insurance.
Number three , this is very important, always pay everything in full every month. So you don’t get charged the interest for next month onwards.
Number Four, If you do everything right, you’re actually making a profit, you get the cash back.
You get all these free benefits. You get reward points. So for the upcoming months, just rinse and repeat.