In today's world, you have to use credit to build credit. Although a debit card or cash may seem like the lowest-risk option, building your credit by responsibly using a credit card can improve your credit score and grant you better access to long-term loans at favorable rates, employment opportunities, and more. You want to make sure you use your cards, but you don’t want to spend more than you can afford. Here are some purchases you may want to charge to your credit card.
Electronics and appliances
It’s a good idea to pay for big-ticket items, like electronics and appliances, with your credit card. This will provide insurance on these purchases, such as doubling the offered warranty. Some cards also offer price protection, which covers the difference if the price of an item drops after you’ve bought it.
Car rentals
Here, too, paying with a credit card can provide you with insurance on the car. The insurance likely won’t be as robust as temporary insurance you may purchase through the car rental service. Still, it will probably offer some collision coverage for the rental at no extra charge.
Purchases made abroad
A credit card is usually your best payment method when traveling and making purchases abroad. Cash always carries the risk of loss or theft. Debit cards may have fees for transactions made outside the country and may not be accepted by some vendors. On the other hand, credit cards from well-known issuers are accepted almost universally and are a lot safer to carry around than large sums of cash. In addition, many credit card companies offer a more favorable exchange rate than the average money changer you’ll encounter during your travels. Finally, transactions made via credit card can always be disputed if the purchased item or experience is different from what is expected and advertised.
When using a credit card abroad, be sure to let your issuer know of your travel plans. This way, they’ll approve the purchase instead of flagging it as fraud.
Fixed monthly bills
If you’re looking for an easy way to build credit, you can set a fixed monthly bill, such as a subscription or payment for phone or internet service, to be charged to your credit card each month. This way, you’ll make regular, scheduled payments by credit card, ensuring it always gets used. Make sure to set a reminder to pay your credit card bill on time or early each month!
Online purchases
You’re usually best off paying with a credit card when shopping online. Unlike other forms of payment, credit card transactions are always traceable and provide some form of coverage for fraud. Some debit cards also offer fraud protection, but this is usually minimal. Credit cards, however, can protect against fraud if reported within the required time frame.
But wait—it gets better. Some credit cards also protect items purchased online if they are lost or damaged in transit. This feature can be incredibly convenient when shopping online, especially on a new site.
When using your credit card to pay for purchases online, be sure to follow these safety measures:
- Never share your card information via email or text message.
- Only shop on safe sites. Look for the “s” after the “http” in every site’s URL and for the lock icon, which indicates the site’s security.
- Never click on an embedded link or download an attachment allegedly sent by an online retailer.
Mobile phone bills
Another good candidate for credit card payments is your monthly mobile phone bill. Many credit card companies offer some coverage for phones that are lost, damaged, or stolen if the card was used to pay a specific number of bills. You’ll need to be up-to-date on your phone bills and you may also be required to pay a deductible before you can claim coverage, but the security of knowing your phone is protected can make it more than worthwhile. This also has the added benefit of ensuring your card stays open - some issuers will close your line of credit if it goes unused for too long, so having a recurring bill can safeguard your account.
Travel expenses
Many credit card companies offer unique rewards and perks for travel-related expenses. For example, some card issuers will cover flight cancellations or trip interruptions that are out of your control. In addition, your card may cover lost luggage and medical emergency expenses while traveling. These perks become even more attractive with a special travel-themed credit card, which also offers more points on travel-related purchases. If you’re a frequent traveler, consider opening one of these cards for ongoing benefits. Just be sure to consider the interest rate, as it may be steeper than you’d bargained for.
Credit cards are tricky, but if you know when to use them, you can build a strong credit score, which can benefit your finances for years to come. If you enjoyed this article, you can find more on our MoneySmart Tips blog.