There are a few reasons why you might want to consider using your credit card for all (or almost all) of the purchases you make. Maybe you’re on a tight budget and want to use your plastic to buy some time in between paychecks. Or maybe you’ve got a rewards credit card in your wallet, just ready to rack up points, miles or cash back every time you swipe.
No matter what the situation is, there are clear advantages to making that plastic your payment method of choice. But buyer beware: a credit card can either be a good spending tool or an instrument of debt. (You can calculate the lifetime cost of your debt here.) It all depends on how you use that card.
Here’s how to determine if it’s smart to solely rely on your credit card.
1. Consider Your Spending Habits
Whether you’re looking for some liquidity or to load up on rewards, a credit card is best used when you pay your balances off in full and on time each and every month. Failure to do so can hurt your credit score (more on that in a minute) and render any time or rewards you saved moot due to interest charges.
There are tricks to ensure that you don’t overcharge and wind up in a bind from month-to-month. You could, for instance, pay your credit card off weekly or even daily from a linked checking account. But the bottom line is: if you really can’t trust yourself to track your spending closely and avoid running up a balance you just can’t afford, you might not want to keep a credit card at the top of your wallet.
2. Choose the Card Wisely
If you’ve decided you’re disciplined enough to make a credit card your go-to, it’s important to choose your plastic wisely. People who are looking to maximize points, miles or cash back, for instance, should research good rewards credit cards. (You can learn which qualities the best cash rewards credit cards have here.) But someone who’s on a tight budget and hoping to space their monthly bills out might be better off using a low-interest credit card, just in case they inadvertently wind up carrying a balance.
3. Check Your Credit Score
Credit cards can come back to bite your credit score primarily in two different ways: you miss a payment or you run up a big balance and mess up your credit utilization rate, essentially how much debt you are carrying versus how much credit has been extended to you, both collectively and on each card. The rule of thumb regarding utilization is to keep the amount of debt you owe below at least 30% and ideally 10% of your total available credit. And you might want to check your credit to see if you’re already bumping up against that limit. (You can see your free credit report summary, along with with your two free credit scores updated each month, on Credit.com.)
If you’re already carrying a lot of debt, relying primarily on a credit card may not be such a great idea. Or, at the very least, you’ll need to time your payments wisely. Most issuers report your balances to the three major credit reporting agencies — Equifax, Experian and TransUnion — by your statement’s billing date, not it’s due date. You can call your issuer directly, too, to confirm what day you have to make a payment by to avoid having a problem appear on your credit report.
More on Credit Cards:
- How to Get a Credit Card With Bad Credit
- An Expert Guide to Credit Cards With Rewards
- How Secured Cards Can Help Build Credit