Learning Center

Hi, I'm Mark, the host of SAFE Cents! Welcome to our Learning Center, a place where you can improve your financial health.

Credit Card Secrets

SAFE Cents Video

If you have credit card debt, you're not alone! Most Americans have about three different credit cards in their wallet. You've probably heard to steer clear of credit cards, but, they're actually a great financial tool when used correctly. Think of them as a means to help build your credit, protect against fraud, and earn you rewards! Mark has a few tips to help you get the most out of your credit cards. Check it out!

The Secrets of Credit Cards: a Video Summary

I’ve got some numbers that’ll make your head spin:

  • The average credit-card holder has 2.7 credit cards (we'll round that to 3).
  • The average household owes about $5,300 on those three credit cards.
  • The total U.S. credit-card debt is at 14.9 trillion dollars.

So, clearly, with numbers like that, there’s only one conclusion: Credit cards are evil and must be destroyed.

No, not really. Credit cards are not evil. When used properly, a credit card is actually a very powerful tool. I’m gonna go so far as to say that a credit card is the Swiss Army knife of financial tools.

For starters, it’s a building tool. Every month, when you buy something with your card and pay your bill on time, you’re improving your credit score in a big way.

It’s also a protective tool. If your card is ever stolen, it protects you by limiting the amount of money you’re responsible for due to unauthorized charges.

Finally, your credit card is a treasure-finding tool. With the right card and a healthy credit score, you can earn rewards like cash back on every purchase not to mention points or miles that you can redeem for airline tickets, hotels and more.

One last tip: paying off the full balance each month is a sure sign that your credit card is a true financial tool.

For more ways to keep your money safe and healthy, visit our Learning Center.

The Big Secret: Credit Cards Aren’t Bad

The average U.S. household owes about $5,300 in credit card debt, and the total U.S. credit card debt is $14,900,000,000,000. That’s 14.9 trillion dollars. But for all that, credit cards aren’t bad to the bone. In fact, credit cards can be an incredibly strong financial tool to keep in your back pocket (or wherever you keep your wallet) – as long as they’re used well.

The Perks of a Credit Card

If you’re paying off your credit card every month, a credit card can only be good news. It’ll help you improve your credit score, earn free stuff, and protect you if something goes wrong.

Credit Cards Can Be Used to Improve Your Credit Score

It only takes two main factors to come up with about two-thirds of your credit score, but each score is made up of five factors:

  • payment history (35%)
  • debt utilization ratio (30%)
  • credit history (15%)
  • new credit requests (10%)
  • credit mix (10%)

Luckily, using your credit cards wisely can help you improve both your payment history and your debt utilization ratio.

Payment history just looks at whether you pay your bills on time. If you pay your credit card bill on time, you’ll be taking a major step. Debt utilization ratio looks at how much you owe versus how much other lenders are willing to give you. Credit bureaus recommend keeping your debt utilization rate to 30% or less, so if your only debt is $3,000 on a card that has a $10,000 limit, you’re doing great. 

While installment loans (e.g., mortgages, auto loans, and personal loans) can also help your payment history, they can have a negative impact on your debt utilization ratio until you get them down to 30% left – and you shouldn’t borrow more than you need in order to achieve that ratio, since that’ll just leave you paying unnecessary interest. Credit cards, on the other hand, allow you to borrow the exact amount you need while still having the potential to provide a good debt utilization ratio.

Installment loans also have set payment schedules so you’re guaranteed to close that account by a certain date. That doesn’t sound bad on the surface, but another (though less important) factor in your credit score is credit history. Credit History looks at how old your oldest account is and what your average account age is. If you open a credit card the day you turn 18 and keep it open the rest of your life, it can literally only help you improve your credit history metric over time.

Get the Card That's Right for You

With so many credit cards on the market, you can find one that fits your lifestyle the best. Do you travel a lot, always on the same airline? They may issue a card that offers bonus miles. Are you loyal to one particular clothing store? They may offer a card that comes with extra coupons or extra money back when you buy in-store. Just make sure you check the interest rate on cards issued by businesses outside of the financial space – while we always recommend paying your credit card off in full every month, that’s not always feasible and some interest rates make digging out of that hole nearly impossible.

Generally speaking, financial institutions like SAFE offer better interest rates on credit cards, and you don’t lose out on perks. SAFE’s Rewards Visa offers points on every purchase, which can either be redeemed for merchandise or cash to use wherever you’d like or applied to your balance.

More Protection

Did you know that it’s generally safer to use a credit card to make most purchases? Credit cards, debit cards, and checks all typically offer fraud protection against unauthorized purchases. Not to mention credit cards are most convenient for online purchases. If your information is stolen, they only have access to your credit limit, not your whole bank account, and credit cards generally have protections in place so you don’t have to pay for charges you didn’t make.

In Case of Emergency, Break Glass

We’ll always recommend having money in savings to cover emergencies, but we also know that’s not always possible. If nothing else, sometimes emergencies happen back-to-back, before you’ve had a chance to replenish your savings. A credit card reserved for emergencies can be a safety net in these situations. It’s better to have a little credit card debt than to default on bills.

Use Credit Cards Wisely

Credit card perks are all well and good, but you still need to make sure you’re using your credit card wisely – both to get the most good out of them that you can, and to make sure you're making your payment on time.

Pay Your Balance in Full Every Month

This is crucial. If you’re using your credit cards as we suggest to max out your rewards (whether flight miles or cash back), you also need to make sure you’re paying your balance in full every single statement. This will help with your debt utilization ratio for your credit score, plus it’ll ensure you’re not spending on interest unnecessarily. Emergencies happen and sometimes you can’t pay in full, but that should be the exception rather than the norm. It’s the best way to get the most out of your credit card.

Get Your First Credit Card Now

If you’re over the age of 18 and you don’t have a credit card yet, now is the time to get one. (If you’re under 18 you’ll have to wait for your 18th birthday.) The sooner you get a card the sooner you can start building a credit history and your credit score. Of course, it’s more important to make sure you don’t find yourself in incredible amounts of debt so make sure you’re able to use the card responsibly if you do get one.

No, Really: Make Sure You're Using the Card That's Right For You

We touched briefly on this when talking about points, but “the card that’s right for you,” may be more than just whether you get cash back or points to spend at your favorite store. If you’re carrying a balance on a credit card with a high interest rate, it may be more important to you to get a balance transfer credit card so you can minimize how much you’re paying in interest. You’ll also want to consider what fees (if any) and what interest rate each card is charging. 

The bottom line is that, for all the flack they get, credit cards are tools that you can use to your advantage. They offer rewards, the potential for a credit boost, strong protection, and so much more.