If you use credit cards wisely, you can benefit from a lot of perks, depending on what that card offers. For example, if your card has a cash back benefit, you earn money as you use the card, and can generally trade in this money for a credit to your account, a gift card, use it to make purchases, and in some cases, transfer the money to your bank account.

Some credit cards have additional benefits like credit monitoring, identity theft protection, insurance for car rentals, insurance for your cell phone, discounts at stores or for services, etc.

Here are some things you want to look out for though.

Be Aware

Annual Fees

If the card has an annual fee, avoid it, unless it has some perk that makes it worth it AND you are going to use that perk every single year. Otherwise, paying an annual fee is literally paying the credit company for the privilege of owing them money. Not smart.

Protection Plans

Most cards will offer you some kind of protection plan for a dollar or two a month. In the event you are unable to pay your bill for a “qualifying” reason like losing a job, illness, etc., it will cover your minimum payment for a while until you get back on your feet.

This is unnecessary. You should have an emergency fund for this reason. And if you are using credit wisely, you should never be making minimum payments. You should be paying in full every month to avoid interest charges.

Perks and Benefits

Just because the card offers you a perk doesn’t mean it’s free. For example, if your card offers you roadside assistance and you have to use it, there is probably some kind of co-pay. You might even be responsible for the entire bill. In many cases, the card company is only offering to locate a towing service for you and send them your way, leaving you responsible for the bill.

If the card offers cell phone insurance and you have reason to submit a claim, they are not going to buy you a new phone. They might send you to a repair servicer, but you will be responsible for at least a copay of some sort. It’s not going to be free.

Some cards offer discounts at certain stores or extra cash back on certain things, but if you’re budgeting wisely, be careful. Being offered a discount or perk is not a good reason to buy something you don’t need.

Some offer travel rewards including things like airline miles, hotel discounts, etc., but again, this is only beneficial if you actually have a reason to use them. Taking unplanned trips to use these benefits just because you have them can cost you money you didn’t plan to spend.

Introductory Interest rates

Some cards offer introductory incentives such as 0% interest on purchases and/or balance transfers for so many months. There are things you need to know about these offers that they have to disclose in the fine print. Read it. It’s important.

For example, if there is a balance transfer offer at 0% interest, there will likely still be a balance transfer fee up front. If the transfer fee is 5% and you are transferring $2,500, you will have a 0% interest rate for however many months but you will immediately be charged $125 for the transfer fee and the introductory interest rate is not applicable to this amount. If you don’t pay that part when you get your first bill, you will be charged interest.

Also keep in mind that if you don’t have the full balance paid off within the introductory time period, you may end up paying all of the interest anyway. The card company will keep track of the interest you would have been charged throughout that grace period and if you haven’t paid off the balance in it’s entirety, they may back date all of those interest charges you would have incurred and add the entire lump sum to your balance. It would be as if you never had the “deal” in the first place.

Cash Back

Cash back can be a great benefit but again, only if it’s something useful to you. Some cards offer cash back on every purchase, but in many cases, cash back is only offered in certain categories and sometimes the amount varies.

For example, if I have a card that offers 3% cash back on purchases made at a store I never go to, or a category I don’t spend a lot of money in, I’m not going to benefit from this offer.

Make sure you use the cash back before it expires. Sometimes there is no expiration date but you need to read the fine print to make sure. If there is an expiration date, make use of it before that happens.

Introductory Credits

Many credit cards will offer introductory offers such as a $150 credit to your account. These offers come with strings. Many times, the “offer is subject to change based on approval”, which means you have to meet certain credit standards in the first place to qualify.

In general, these offers also require you to make purchases totaling a certain amount, and within a certain amount of time in order to be eligible for the credit.

If the card offers a $150 credit, but requires me to use the card to make $1,000 worth of purchases within 90 days, I will only get that credit if I can meet those terms. Unless I use that card to make quite a few purchases, and am able to pay the balance in full each month, I won’t benefit from this offer.

Credit usage

Keep your credit card usage below 30% of your total available credit. Using more than this percentage will negatively impact your credit score.

If you have multiple cards, add up the total available credit between all of them and figure what 30% of this is. It doesn’t matter if you have a balance on one card or on multiple as long as the total balances being reported to the credit bureaus is less that 30%.

For example, if I have 3 credit cards, one with a $500 limit, 1 with a $1,500 limit, and 1 with a $2,000 limit, my total available credit is $4,000. To keep my credit usage from going over 30%, I need to make sure I am never using more than $1,200 between the cards at any given time. If I use less than that, even better.

Use it Wisely

Here are some tips to remember when it comes to credit cards. If you use them wisely, they can positively impact your credit score and give you added benefits.

• Avoid annual fees. Don’t pay for the privilege of owing money.
• Choose cards that have benefits you will actually benefit from.
• Understand how those benefits work and whether or not they expire at a certain point.
• Don’t open a card simply for the initial cash back offer. Make sure this card will benefit you in the long term. And make sure you meet, or will meet the requirements.
• Read the fine print.
• If you take advantage of an introductory offer, make sure you understand the terms.
• Pay the balance in full every month on all purchases.
• Don’t buy anything you don’t already have the money for.
• Don’t buy things you don’t need just because you have a special offer.
• If you are taking advantage of a balance transfer offer, make sure you pay it off before the offer ends.
• Never pay late. It’s best to go ahead and pay the bill as soon as you get it so you don’t forget.
• Keep your credit card usage under 30% of your total available credit.

You don’t need a lot of credit cards to build credit or keep it in good standing. A couple of good cash back cards that offer you benefits useful to your situation will do the trick.