Credit Card 101: 7 Effective Credit Card Strategies

Article originally published on November 3, 2020 and refreshed on March 18, 2021.

Credit cards can be powerful tools for your personal finances, but like any tools, they can be harmful if used incorrectly.   

Using a credit card responsibly builds good credit, which can make it easier to rent an apartment, receive discounts on car and homeowner’s insurance or obtain loans at more favorable rates. But if mismanaged, credit cards can also lead to bad financial habits and unsustainable debt.  

That’s why it’s important to be strategic with your credit card usage. Here are seven credit card strategies to consider.

Because credit cards have a wide variety of features and benefits, it’s helpful to narrow down your selection by cards that match your stage of life. For example, if you’re a student with no credit history, you might benefit from a credit card with no annual fee, a low interest rate and fraud monitoring, which is particularly important if you’re trying to build credit.

But if you’re already established, you might prioritize a credit card with benefits like cash back and reward categories for common expenses.    

It’s helpful to use a tool like Zions Bank’s credit card comparison table to easily compare different cards and choose the best credit card for your needs.

Credit card debt is a burden for the average American, but this doesn’t need to be your situation. Paying off your full balance each month will build your credit score and make a significant difference to your finances. 

Some people make the mistake of accumulating monthly credit card debt to meet credit card rewards requirements, but this is unsustainable. According to creditcards.com, the average APR is around 16% for new credit cards — substantially higher than the typical 1.5% flat rate rewards you might receive through a high-value credit card rewards program.  

The bottom line is that if you’re carrying a credit card balance that accrues interest, your credit card rewards will be unable to offset your overall costs.

Unlike cash, credit cards generate a paper trail that shows where you spent money and how much you spent. Viewing your credit card statement regularly helps you identify any irresponsible spending habits and stay within your monthly budget. Additionally, it also helps you flag any suspicious activity so you can safeguard your account from fraud.

For many consumers, credit cards entice them to increase their spending habits to gain rewards. For example, some credit cards might require meeting a spending threshold or patronizing a limited list of approved merchants.

This is a problem because if you increase your spending habits, your credit card reward program isn’t saving you money — it’s costing you. 

Instead, seek a rewards credit card that aligns with your spending habits so you won’t be tempted to go over your budget. It’s also important to be aware of rewards program pitfalls such as expiration dates for rewards points, required spending limits and rotating popular spending categories.

Some credit card users accumulate rewards, such as travel benefits or airline miles, to plan extra activities that would normally be unaffordable. It can be a treat to splurge with credit card rewards. However, you might be better off leveraging these benefits for everyday needs.     

For example, you might benefit from using credit card rewards points to receive discounts when completing your holiday shopping. Leveraging rewards for your regular activities means you’ll have extra money in your pocket when you really need it. 

When you purchase something with a cash back rewards card, you earn cash for a percentage of your purchase. Many cards offer between 1% to 2% on all purchases with higher percentages for specific categories, such as grocery stores or gas stations. If you’re earning cash back rewards, consider allocating it for a smart purpose like paying off debt, contributing to a Roth IRA or allocating it towards an emergency fund.     

For example, let’s consider a scenario where you’re trying to pay off a student loan. According to smartasset, the average national student debt is $28,400 with a 4.66% interest rate. If this is your situation and you pay an extra $50 each month, you’ll be debt-free almost two years ahead of schedule and save $1,325.11 on interest.   

Although it can be tempting to use your cash back rewards as spending money, being strategic with your credit card earnings can make a long-lasting impact on your finances.

Credit card balance transfers involve moving outstanding debt from one credit card to another. This is typically used to move debt to a credit card with a lower interest rate. If done correctly, it can save hundreds or even thousands of dollars in interest, allowing you to get out of debt sooner.

It’s recommended to seek out a new credit card with benefits such as a $0 annual fee and a 0% interest rate of 6 to 12 months or more.   

If your new credit card has these benefits, evaluate your finances to confirm you can pay off your debt before your promotional interest rate expires. Some cards have interest rates that jump sharply after your promotional rate, which could offset your savings. Mark your calendar because credit card companies typically don’t send reminders when your promotional rate ends.

Finally, watch out for pitfalls that could void your potential savings. For example, breaching any of the rules of your new cardholder agreement — such as bouncing a check, exceeding the credit limit or making a late payment — could trigger a high interest penalty rate. To avoid surprises, it’s wise to read the fine print carefully.

Credit cards are a versatile tool that can help build your credit score and increase your purchasing power. A good credit score can save you thousands of dollars through receiving the best rates on insurance and loans. So, if you have a limited credit history, now is the time to start your journey. 

If you’re new to credit cards and would like a deep dive into building, guarding or repairing credit, the Zions Bank Business Resource Center offers a free workshop, Credit Matters: Know Your Score and More. If you’re interested, check out the Business Resource Center workshop calendar and register for the next session.

If you’re ready to move forward with your own credit card, you can find out which Zions Bank credit card* fits your lifestyle by using our credit card comparison tool, or visit your local Zions Bank branch for more information.

*Credit cards are subject to credit approval. Terms, conditions and restrictions apply. See a banker for details.

Malcolm Hong is the Public Relations officer for Zions Bank in Idaho.