American ExpressAmerican ExpressAmerican ExpressAmerican ExpressAmerican Express
United StatesChange Country

How to Use Credit Cards Effectively As Money Management Tools

Understand how to use credit cards effectively as money management tools to manage your money and enhance your lifestyle. Plan your budget to manage your money properly.

By Charlene Rhinehart | Black Enterprise 

6 Min Read | June 14, 2021 in Cards

 

At-A-Glance

If you understand how to use credit cards wisely, you can boost your credit score and tap into money management opportunities that can benefit your financial well-being. 

Credit card uses for money management include budget tracking, wealth building, and life enrichment. 

While 2020 was a rocky year for many across the globe, the average FICO credit score still managed to exceed expectations.

 

According to Experian research1, average credit scores reached a record high in 2020, soaring to a 710 out of 850. This record-breaking performance was driven by two essential pieces of the credit score pie: payment history (35%) and credit utilization (30%). More Americans have been paying their bills on time and improving their debt management, providing an excellent opportunity to tap into the power of credit cards as an effective money management tool.

 

Good Credit Is the King of Credibility When You Know How to Use Credit Cards 

Gaining credibility as a financially responsible adult starts with your credit score. The three-digital number is synonymous with the report card you receive in school, providing lenders with an assessment of how well you manage your money. Depending on how low your credit score is, lenders may not be willing to extend credit to you, or they may charge you a higher interest rate to borrow money.

 

Good habits increase your score. There are ways to boost your credit if you want to be in good standing. You can set up bill payment reminders, enroll in autopay, or commit to making multiple credit card payments every month to ensure you don’t receive a bad mark for being tardy. A good rule of thumb is to avoid using over 30% of your total credit and pay off your balance in full every month. If you seek to obtain multiple credit cards, make sure you don’t open too many at the same time. That could negatively impact your length of credit history or new credit, accounting for 15% and 10% of your overall credit score, respectively. However, signing up for a new credit card has the potential to increase your credit score because it can decrease your overall credit utilization.

 
How to start building a solid credit foundation for your kids. If you’ve mastered your own credit card goals, you can help your kids establish credit by adding them as authorized users on your card. Your child may inherit your credit history, so consider this an option if you have an excellent credit history and habits. As soon as your child is born and has a Social Security number, they can gain access to credit. A child with an established credit score can qualify for lower interest rates, increase their odds of getting approved for housing, and have a better chance of getting student and car loans. 


It’s good to note that the card will be in your child’s name, but you will be responsible for making all the payments. Some parents choose not to give their kids the physical card until they have proved they are responsible enough to manage it. 

 

How to Use Credit Cards as the Ultimate Budget Tracking Tool 

Credit cards offer built-in benefits that can help you budget and manage your cash flow. Although it’s easy to swipe and go, credit card companies provide you with a report of every purchase you’ve made that makes it hard to ignore any bad financial habits. This recurring reality check will help you gain more control over your spending and create a stricter monthly budget

 

Spend tracking: The best way to use a credit card for budgeting is by taking advantage of the spending report provided by credit card issuers. You’ll see expenses assigned to categories like dining, travel, gas, streaming services, and groceries to give you a snapshot of where most of your money is going. Some credit card companies offer a year-end spending summary that shows you your top spending categories, top places where you’ve spent money, and spending activity by month. You can download your transactions to organize and evaluate the data for budgeting purposes.

 

Cash flow management: You can use your spending reports to better align your income with your expenses. If your credit card bill is due on the third of every month and you get paid on the 15th and 30th, you can pay a portion of your bill every time you receive income to avoid a substantial payout on the due date. Also, you can call your credit card company to request a monthly payment date that better aligns with your income schedule.


Credit cards are a smart way to keep track of money you’ve already spent. Plus, you’ll be able to take advantage of discounts that your card offers, helping you save more money and work toward your financial goals. 

 

Access Wealth-Building Opportunities with Credit Cards 

Credit cards give you access to wealth-building opportunities at your fingertips. It allows you to use other people’s money (also known as OPM) to make purchases while your cash is in an account working for you. 


Let’s say there’s a 0% introductory APR offer on the table for a credit card. You’ll be able to borrow money without paying interest for a period. The cash you would have spent toward interest payments can go toward investments that can generate a return. 


This also works as a monthly wealth-building strategy. Credit card companies typically give you 30 days to pay down balances without accruing interest. You’ve essentially increased your liquidity and ability to use your cash for other items during this grace period. You’re also accumulating points on the purchases you’ve made if you have a rewards credit card, allowing you to invest the value of your rewards points every month into assets that can grow your wealth portfolio over time. 


This strategy can also be used with a credit card that you have for your child. By putting all purchases for your child on their credit card and paying the balance in full every month, your child is accumulating rewards points that can be used to jump-start their investment portfolio.

 

Best Way to Use a Credit Card to Enhance Your Lifestyle 

Credit cards give you financial power, but you must know how to use them wisely. Once you understand how it all works, then you can use credit cards to manage your lifestyle. 


For example, if you love to travel, take advantage of travel credit cards that grant you access to bonus miles. Hotel credit cards can also be a way to earn points that you can redeem for hotel accommodations.

 
These lifestyle-focused credit cards come in handy when you have a big trip coming up. Instead of saving for months to plan your dream vacation, you can tap into your credit card rewards and lower your cost or redeem rewards for complimentary offers. 

 

The Takeaway 

When you’ve proved you are financially responsible, your cards can work in your favor. From gaining access to exclusive card holder benefits to turning your plastic into a wealth-building machine, there are many uses of credit cards that can put you in the driver’s seat of your financial future. 


The key is to maintain good financial habits and understand how each move you make will impact your credit standing. Once you’ve mastered the fundamentals of credit, you’ll be able to leverage one of the most powerful wealth-building secrets that exists today. 

Charlene Rhinehart

Charlene Rhinehart is a personal finance writer and author based in Chicago, IL. Her work is featured in several publications, including Black Enterprise.  

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.