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Using credit cards in a responsible way can lead to a lot of benefits for you. However, if you’re not careful, it can lead to a lot of misery.
When I was still a teenager, my parents helped me to secure a bank account and debit card. I learned that I could spend the money I had available, and after that I was out of luck.
Learning that I could only spend the money I had set a solid foundation for me later when I moved out of the house and went to get my first credit card. I knew that I shouldn’t be spending more than I earned, or more money than I had.
Unfortunately, many people fail to understand how devastating credit card debt can be. Once you’ve got more debt on your credit card than you can pay off, it becomes a real struggle to make it happen. If you struggle in any way with credit card debt, or spending more than you earn, then this article is not for you.
On the other hand, if you do not carry any credit card debt, have a 3 months emergency fund, and have no issues meeting your financial obligations, then this article is for you. These are just a few tips on how to make your credit card work for you.
Build up your credit
Before you start heavily using multiple credit cards, you’ll need to build up your credit. Ideally, if you’re in a strong financial position already, you’ve already done this. If you haven’t though, then you’ll need to start out with this step first.
In order to build your credit, you’ll need to get a credit card. Your first credit card will generally need to be a secured credit card - this basically works like a debit card in that you can’t spend more than you’ve got available on the card. You’ll want at least 6 months of credit history before considering something else.
Once you’ve got a credit score that is above 700, you should be ready to move into some better credit cards. If you’ve only got 6 months of credit history (from your secured credit card), then your next option will be to get a very basic credit card - Discover is generally what I’d recommend.
After having 1 year of credit history with perfect payments (and a score over 720), you are ready to start really making your credit card work for you.
Get multiple cards
As we noted in our points guide for families, getting a single credit card for category spend isn’t going to get you very far when you’re trying to earn points for your family. You’re going to want to work via multiple credit cards.
This doesn’t mean you shouldn’t use category spend ever. However, it does mean that it shouldn’t be what you’re trying to optimize. What you’re really hoping to optimize is sign up bonuses - these are lucrative deals that credit card companies run to get new people to sign up for their cards.
By focusing on sign up bonuses, you’ll really be maximizing your points earning potential. For example, the Chase Sapphire Preferred has a sign up bonus of 60,000 Ultimate Reward points after spending $4,000 in the first 3 months. Without the sign up bonus, it would take you $30,000 of spending in a bonus category to reach that same amount of points.
$30,000 is a lot of money to spend, and the reality is that you can get 6 new credit cards and spend $30,000 and get hundreds of thousands of points instead of only 60,000 points.
Don’t worry about your credit score too much
The number one concern I hear from people is how bad this is on your credit score. In reality, opening new credit cards will not have a significant impact on your credit score. While you may see a few points drop, it won’t last for long.
What will have a major impact on your credit score is carrying a high balance and missing payments. You absolutely need to be paying your credit card off and doing so on time every single month. As long as you’re doing that, your credit score will be fine.
Put all spending on your credit card
When you’re trying to meet the spend requirement for a credit card bonus, you should put all of your spending on the credit card that you need in order to meet that requirement. This will likely mean that you’ll probably spend extra dollars over what you would otherwise.
Now, if you can easily spend $5,000 over 3 months without changing how you spend otherwise, then that is great. You don’t need to change a thing. For most people though, that’s not the case. You’ll need to be a little creative.
Paying your rent is the easiest way to put a large dent in your spending requirements. If you don’t have rent because you own your home, then you’ll not be as lucky. Paying for daycare, prepaying your utilities, and paying taxes are all simple ways to meet spending requirements.
Make sure you’re making your money, and credit cards, really work for you. Be smart with your money, and earn points to take the vacation of a lifetime. Be sure to read our guide on traveling for free on points with a family.