The first modern Credit Card with revolving credit facility was introduced in the year 1958 by Bank of America. Credit Cards have come a long way since then and are one of the greatest innovations of the 20th century in finance. Credit Cards make it easy for making purchases without the need for carrying cash and they also give interest free credit to consumers. Used properly, Credit Cards offer a lot of other benefits like reward points, free air tickets, etc. Below are some tips to extract maximum benefits out of your Credit Card:
Use Co-Branded Credit Cards
Co-branded cards are a special type of credit cards which are offered by banks and credit card companies in tie-up with businesses like Oil and Airline companies. Co-branded credit Cards offer a lot of benefits to the users in the form of discounts, loyalty benefits, and additional options to redeem your reward points. Having a co-branded credit card also means that there will be no need to carry a separate loyalty card for that particular brand or company. All the regular benefits available for the holders of a loyalty card are also available for the holders of co-branded Credit Cards too. But it is good to select the co-branded Credit Card which will be more suitable to you. For E.g. People who fly frequently can go for a Credit Card issued in partnership with an airline company.
Understand and Utilize Rewards Program Well (Reward Points)
Banks and Card Companies earn a commission on the purchases you make from merchants. The commission amount is generally fixed at 2 percent and can decrease depending on the volume of business that a merchant can generate for the bank (American Express charges higher commissions). Reward points are a way through which banks encourage customers to continue using their Credit Card by giving back a portion of the commissions they earn from merchants. Reward points can be redeemed for gifts or setoff against air miles or other products/services. Use a Credit Card with good reward program and understand the reward program well. Some cards like American Express offer additional reward points for purchases made during weekends or during the festive season. Finally, do remember to redeem the reward points before they expire. Reward points for many credit cards generally need to be redeemed within a year of accumulation.
Time Your Purchases Properly
Unlike Charge Cards which don’t have any interest free period, Credit Cards offer a credit free period for all the purchases made with them. Interest free period varies from card to card but generally is between 50 to 60 days. Since you don’t need to pay the amount immediately for the purchases made through Credit Cards, you can earn interest for the same amount. If the purchase is made at the start of your billing cycle, you can earn more interest. For E.g. Say that the billing cycle of your credit card is from 21st to 20th of a month, then making a purchase within 4-5 days of the start of the billing cycle can earn you more interest on the amount. The amount earned like this may not be significant, but proper timing of Credit Card purchases can add some extra dollars to your bank account.
Bonus Tip: People who have an online stock or mutual fund investment account can put the amount in a money market mutual fund and earn more interest. Money Market Mutual funds pay higher interest rates than the regular bank accounts and generally don’t have any lock-in period.
Utilize Cash Back Offers and Merchant Tie-Ups for Discounts
Instead of having to redeem reward points for gifts, some banks offer a straight cash back on the purchases made. Reward points will be converted directly into cash and adjusted against the future purchases. These type of cash back offers make sense for people who find it difficult to keep a track of their reward points and redeem them periodically. Using a Credit Card with cash back offers will be very useful to such type of customers.
Credit Card companies give special offers through tie-ups with merchants. Some of the examples of such offers are free movie tickets, additional discounts on the purchases made through the Credit Card, interest free EMIs for purchases made from a merchant, etc. Such offers are communicated to customers through Emails, monthly bills of the Credit Card, bank’s website, etc. Keeping a track of such offers can save lot of money.
Pay Your Bills on Time and Never Withdraw Cash with a Credit Card
Since the cash lent through a Credit Card is essentially high risk debt, banks and credit card companies charge a higher rate of interest on the outstanding amount on the card. Always try to pay your Credit Card bill on time. If it is not possible to pay the amount on time, atleast try to pay the minimum amount as it can save you the late payment charges.
Unlike the regular purchases through a Credit Card, banks don’t provide any interest free period for the cash withdrawn through the Credit Cards. You need to pay high rates of interest right from the date of the withdrawal. Banks also charge withdrawal charges for the cash withdrawn through Credit Cards. Hence it is always advisable to avoid cash withdrawals with Credit Cards.
