6 Reasons Your Rewards Credit Card Could Be a Game-Changer
Nearly three in four Americans say they have a credit card that gives them rewards, and two in three people with a rewards card prefer to use it because of the points it earns, according to Ipsos.
As long as you use it correctly, a rewards credit card can be way more powerful than you think. It can help you build credit and earn perks you would otherwise pay for out of pocket. Here are several reasons a rewards credit card could change the way you manage your money and improve your financial health.
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You Get Paid for the Spending You Already Do
One of the biggest perks of a rewards credit card is that you earn something back on purchases you were going to make anyway. When you use a debit card to pay for groceries, gas, dining or online shopping, you typically don't earn any points or rewards. But if you put those everyday purchases on a credit card instead, you get to earn cash back, points or miles without changing your spending habits.
Once those rewards add up, you can use them for statement credits, travel, flights, gift cards or direct deposits.
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It Can Help Build Your Credit Score
According to myFICO, payment history alone makes up 35% of your FICO credit score, which means simply paying your credit card bill on time and in full each month can boost your credit score.
Another big factor that determines your FICO score is your credit utilization, which accounts for about 30% of your credit score. This refers to the percentage of your available credit that you're using. Ideally, you'll want to keep it under 30%. So if you have a total credit limit of $15,000, aim to keep your balances under $4,500. High utilization can make you look like a risky borrower to lenders, which in turn lowers your credit score.
Sign-Up Bonuses
Many rewards credit cards offer sign-up bonuses for new cardholders who meet a spending requirement within the first few months. If you time your credit card use around planned expenses like travel and moving costs, you can earn big rewards without spending more than you normally would.
It Can Help You Save on Travel
If you love traveling, check out travel rewards cards. Using one, you can redeem your points or miles for flights, hotel stays, rental cars or upgrades. Some cards also come with perks like free checked bags and access to airport lounges.
You Get Extra Protections and Benefits
Many rewards credit cards come with built-in protections that can save you money and stress, such as purchase protection, extended warranties, rental car insurance, fraud protection and travel insurance. These benefits can be a lifesaver if something goes wrong with a purchase or trip.
It Encourages Better Financial Habits
A rewards credit card can encourage discipline if you treat it like a glorified debit card. As long as you only charge what you can afford to pay off immediately, you can avoid expensive interest and maximize your rewards. Using a rewards credit requires financial discipline, which can be intimidating at first. But with time, you'll eventually develop confidence and feel more in control when it comes to managing your money.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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