Smart ways to use credit cards
Walecia Konrad, February 20, 2007
if someone suddenly took away all of your plastic. Credit cards are so much more
convenient and safer than carrying cash, it's hard to imagine life without them.
As the credit card industry has evolved, new products and features make using
credit cards even more appealing -- if you know how to play the game.
|4 smart ways
to use credit cards:
Here are four ways to get the most
out of your plastic.
Build a good credit rating.
Pay your credit card bills on time, stay well within
your credit limits and be careful not to take on too
much debt with too many cards and you'll begin to
establish an excellent record on your credit reports
from all three credit reporting agencies. That information,
in turn, is used to calculate your credit score --
a number that tells potential lenders how likely you
are to repay your debt. Use your cards to boost your
credit score and you'll not only qualify for zero
and low-interest rates on competing cards but you
may also be eligible for a better deal on your mortgage
and auto insurance. Check out "3
steps to boost your credit score."
Protect your big purchases.
If you buy something that's damaged or defective and
you used a credit card, you have the right to withhold
payment under the Fair Credit Billing Act. You do
need to make a good-faith effort to solve the dispute
with the merchant. But if you can't, your credit company
will investigate the problem. If after contacting
the merchant you are unable to settle and the card
company sides with you, the charge won't be added
to your bill. Purchases made with debit cards are
not covered under the Fair Credit Billing Act. In
addition, some cards offer extended warranties and
other protections for large purchases made on the
card. Check with your credit card company.
Make online shopping safer.
The Fair Credit Billing Act also covers online purchases,
making a credit card the best way to pay in cyberspace.
If you're worried about security, many credit card
companies offer a one-time use account number for
large online purchases that keeps your real account
number off of the Web.
Use your card for a low-interest loan.
Robert Manning, research professor of consumer finance
at the Rochester Institute of Technology and author
of "Credit Card Nation," once used a low interest
rate credit card to buy a car. The fixed-rate on the
card was better than what banks were offering on auto
loans and he didn't have any of the application hassles.
(Of course, this only makes sense if you qualify for
a very low interest card and a very high credit limit
-- and you can afford to pay the big balance off quickly.)
Manning even suggests young people strapped for cash
use a low-interest card to fund their 401(k)s
in some instances. "Say you borrow $4,000 to contribute
to your 401(k)," explains Manning. "Maybe
your company makes a 50-percent match. Last year the
stock market went up 10 percent. The free money from
the match and the stock gains will far outweigh the
interest on the 'loan' you made to yourself if you
pay off the card responsibly."
This story ran on
BankRate.com on February 20, 2007.