Kenneth Hall* says using a credit card wisely can boost our credit scores and net some handy benefits for minimal effort.
Photo: Steve Buissinne
Credit cards are one of those divisive topics in Australia — you either love them or you hate them.
While Aussie households do have a significant amount of household debt relative to their income levels, using a credit card wisely can boost your credit score and net some handy benefits for minimal effort.
Here are just a few smart tips to improve your credit card game and get ahead in 2020.
- Don’t go chasing waterfalls … or bonus points
A common practice for credit card users is “churning” — whereby you sign up for one credit card, gain the benefits such as bonus rewards points, then rinse and repeat with the next card.
While there can be downsides to this strategy, such as a short-term hit to your credit score, it can be a great little earner for the average Australian if your spending is high enough.
However, where people start to lose their way is when they start buying things to meet the minimum spend criteria, which they otherwise wouldn’t have.
By doing so, there comes a point where the money you have spent over and above what you would have anyway could have been saved and used to buy that next flight overseas instead of chasing Frequent Flyer or Velocity points.
- Put recurring expenses on your credit card
The best way to improve your credit card game is to get into the habit of getting low or no-fee credit cards (at least for the first year) and maximising the amount of bonus rewards points per $1 spent.
A great way to do this is to put recurring expenses like rent, utilities, groceries and the like on the card to reap the benefits without increasing your spending outside of your normal expenses.
While most credit cards have restrictions on the sort of payments that are eligible to earn bonus rewards points (such as government payments), there are a few available on the market that can be a massive boost to your personal finance game in 2020.
- Maximise the time value of your money
One of the biggest benefits that I enjoy from credit card use is the ability to keep the money in my account for longer, therefore earning interest in the meantime.
One example is taxation, with some credit cards allowing you to pay your tax to the Australian Taxation Office (ATO) with your credit card and still earn bonus points along the way.
With tax due for the average Australian by 31 October, with a strong budgeting mechanism in place, you could be keeping that tax money in your high-interest savings account that little bit longer and earn additional interest before paying the same amount of tax — bingo!
There are many ways to use credit cards to your advantage, but the key to maximising your benefits is solid research and strong budget controls.
* Kenneth Hall is a contributor to Motley Fool.
This article first appeared at www.fool.com.au.
