four-smart-credit-card-moves

What's the smartest credit card move you've ever made?

CardRatings.com asked that very question in a recent poll in the weeks leading up to the American Bankers Association's annual "Get Smart About Credit Day," set for Oct. 20, 2011. The ABA's nationwide campaign aims to educate young people about sound credit card use.

The poll first appeared on the CardRatings.com home page on Sep. 23. Respondents had a choice of four answers. Here are the results:

"Got a rewards card and ran all my regular expenses through it"

48 percent. This was by far the most popular answer, chosen by nearly half of you. This means many of you are capitalizing on rewards cards to reap the benefits — cash back, airline miles and points — simply by paying your bills with your rewards credit card and paying your balance each month.

With rewards cards, you make money every time you use them. Cash back credit cards reward you with cash not only for purchases but also for cash advances, balance transfers or interest payments. Travel rewards credit cards earn you miles or points, which you accumulate whether you make travel or non-travel purchases.

You can redeem points or miles for travel expenses — hotel stays, airfare, car rentals — or for goods and services, depending on your card's rewards program. These perks can add up to a significant dollar amount over time. Because of the variety of rewards cards that exist, the best credit card for you will be the one that most closely pairs up with your interests, spending habits and lifestyle.

"Used a balance transfer offer to pay off old debt"

15 percent. A significant number of you took advantage of a balance transfer offer, moving an existing balance to a new card with a set period of time in which little or no interest was charged, giving you time to reduce what you owe without incurring additional debt.

With many of these cards, you can transfer not only credit card balances but also other high-interest debt, like auto and appliance loans. Some cards offer zero APR for an industry-leading 18 months.

If you use these cards smartly, by paying as much as you can toward your debt during the introductory APR period while refraining from making additional charges on the card (new purchases have a higher interest rate), you can accomplish two goals: You can significantly decrease your debt, while saving perhaps hundreds or even thousands of dollars in interest charges, depending on how much you owe.

For example, if you owe $10,000, and you've been paying the average consumer credit interest rate of 16.8 percent (according to IndexCreditCards.com), and you transfer this balance to a zero-APR credit card, you could save $1,680 per year, less the initial balance transfer fee, which varies from zero to 5 percent, until the promotional period expires.

"Used a secured credit card to rebuild my credit history"

15 percent. This move is not for everyone, but if you have either no credit history or a poor credit history, this can be the smartest way to seize the opportunity to start fresh, and work to rebuild your good credit through the use of secured credit card.

With a secured credit card you receive a credit line in exchange for a deposit. This option allows you to ease into using a credit card and, if you demonstrate you can make regular payments, develop a favorable credit history over time. After you establish a record of timely payments, the secured credit card may convert to an unsecured one at the bank's option.

"Cut up my credit cards and closed my accounts"

21 percent. You might think this would be the "nuclear option" at CardRatings.com. In fact, this could be a very smart move indeed if you've gotten yourself into too much debt, whether from life circumstances or poor financial habits. Fully one in four of you said eliminating credit cards from your lives was the smartest move you've ever made.

Once you've gotten that debt under control, you may be wondering how to get back into the credit card market so you can enjoy the perks that come with responsible credit card use — rewards, cash back, improved access to other credit, and so on.

Many people start with a secured credit card as described earlier. If you're unable to get approved for a secured card, or you're not comfortable with the terms of a bad credit credit card (most either have an annual fee or a high APR), you might consider a prepaid credit card. But keep in mind that a prepaid credit card gives you the convenience of cashless shopping, but doesn't do anything for your credit score.

Smart credit card habits pay off

When properly managed, credit cards should work for, not against, you.

  • Flexible payments. Credit cards allow you to make purchases on credit and spread the payments over time.
  • Build credit. Making regular payments on credit cards can help you build a solid credit history, which means a higher credit score. And you want a good credit score when making major purchases, like a vehicle or house, on credit.
  • Instant cash for emergencies. Credit cards give you an instant line of credit so you can get cash advances when in a financial bind
  • Pay down debt. Balance transfer offers help you pay down older debt while getting temporary relief from interest charges.
  • Save money. Rewards credit cards pay you back a percentage of your purchases in the form of cash, travel, products, services and more.

The bottom line is this: smart credit card habits can really pay off.