Credit cards and credit card companies have earned a bad reputation. Most people think of credit cards and immediately think of their fine print, hidden fees, and ridiculous interest rates. However, for the financial responsible, credit cards can be a great thing. I have many credit cards and use them all the time. Not only have they helped me maintain a high credit score, but by fully paying the balance every month I avoid all of their negative features: interest rates and fees. I view credit cards as a replacement for my debit card. That is, I don’t use them to spend above my means; I just use them to reap the benefits without being effected by their cost (paying interest and other fees).
Some of you might ask, so if you are going to pay it in full why not use a debit card? In my opinion credit cards offer two clear advantages over debit cards.
1) They help you maintain a high credit score. Credit rating companies look for a long use of credit and your repayment history. Using credit cards help lengthen your credit history and paying in full helps build your credit repayment credibility which is factored into your total credit score.
2) Most importantly, credit cards have a cash back feature. That is, the user earns between 1-5% on every purchase. The more one uses the credit card, the higher the cash back amount. Very important to note, credit cards should not be used to buy something just for the cash back; Only use a credit card when you would have normally purchased something that you need or have budgeted for. If you spend $6,000 a year, that could equate to $60-$300 cash back per year – just remember to ensure that the balance is paid in full every month to avoid unnecessary fees.
By now, using credit cards to make money has become second nature for me and feels like the credit card company is giving me on average $300 per year for doing nothing. When was the last time you earned $300 for doing nothing?
Do you use credit cards to earn cash back?