Many people, especially those with little to no credit, think that this may be the best way to establish and build credit. Use the credit card for simply everything, and you have a great credit score in no time, right?
It doesn’t work quite that easily. Due to the way that banks and other credit businesses calculate your score, this is a way of life that requires actually more sacrifice, and discipline than paying your bills by check or in cash. But, in a few cases, this can actually have benefits.
The effect on my credit score
One of the fastest effects of using your credit card for everything is that your quickly rack up thousands of dollars in charges. This can be great, but ONLY if you are able to pay off your credit card in full. Carrying any balance forward will hurt your available credit, plus the extra fees and interest will impact your payment.
Making sure that you have enough credit available for this is the single most important factor in deciding to use this. All of your bills, miscellaneous expenses and ‘fun money’ should total no more than 30% of your credit. And a lower percentage is even better. This will give you the cushion that is needed just in case of emergency.
If you aren’t quite at this level of credit, continue using your credit card, and paying off your entire balance on time. Eventually, you will be offered a rise in your credit limit, or a different card with more credit. Then with the newly- earned credit, you can move more towards this system, continuing to be aware of the 20 to 30 percent limit you should use of your available credit.
Purchase protection: items bought on a credit card have purchase protection, as well as a method to dispute transactions, and withhold payment. This is great if you buy something that breaks, or is damaged, and in some cases if it is stolen! With any other payment method, you have the money already gone, and a refund is the only solution.
If you have a hobby or business, using your credit card allows a very easy look at how much you are spending on each section of your life. If you rarely use cash or debit, you can see exactly where your money is going, and make any needed adjustments to your budget to make sure these expenses are covered.
With the rise of petty theft, not having cash is an advantage. Keeping small bills and change for the small necessities, and no more. But, this also requires that you have a way to protect your card, and are aware of the ways that credit card number theft is done.
For those that simply dislike paying bills, having auto-pay on as many bills as possible, and only having the one credit card bill to pay can be a real advantage. However, please remember that you cannot use one credit card to pay off the balance of another card. This has been a rule for years, and is a sensible one to avoid creating a cycle where the bills are out of control.
Before making the change
Look closely at your budget
Using your credit card for every expense is a great way to find hidden expenses, but also requires a mental shift. Just because you are using credit doesn’t mean that the bill won’t be here soon, and additional items on the card will affect your ability to pay the balance, which will affect your credit rating.
Look at the rewards
First, this is less benefit unless your credit card gives you rewards that you actually will use. If you are terrified of flying, earning thousands of miles in free airfare (that can only be used for travel) is not very useful for you personally. This should have been at least a minor consideration when you applied for the card in the first place, but if you have a card that offers rewards you don’t want, you may want to re-think using credit for everything until you can upgrade or switch cards.
One card only
This plan works if you only have one credit card, and use only that one. Look at where you go, and what your plans are: this will help you determine which card will be accepted at all of the places that you are likely to go.
This is something to be well aware of: some places pass along the credit card processing fee that their bank charges them. On top of this, some cards have a fee for each use, or a fee if the credit card purchase is under a certain dollar amount. For these, it may be best to use your checking account for these bills.
Avoid the debit card
This will not help your credit: instead, it will take the money (and any fees) out of your bank accounts, leaving the possibility of running cash-short when it comes time to pay the bills.