How to Get the Most From Your Credit Card

Use Credit Cards Responsibly

Your first step in benefiting from credit cards is to wield them correctly. Here are three rules for responsible credit card use:

1. Charge less than 30% of the credit line. Every credit card comes with a credit line, which is the amount of money you can charge on the card. While you can borrow up to that amount, it's best to keep your total charges below 30% of the limit to avoid having a high credit utilization rate, which can lower your credit scores. So if your card has a $5,000 credit line, try to always keep your balance below $1,500.
2. Charge only what you will repay in full. Part of a credit card's appeal is your ability to pay for purchases in installments. Yet keeping a running balance is an indicator that you're in over your head financially. Any debt that you shift over to the next month will be subject to interest, which compounds. Instead, use your card, but only charge the amount that you can and will repay in 30 days or fewer. This way the transactions will be free of interest, you'll sidestep debt, and you'll preserve your credit scores.
3. Pay on time, every time. Miss a due date and you'll be charged a fee of up to $28 for the first late payment and up to $39 for subsequent delinquencies (though issuers can't charge you more than the minimum payment due). Worse, if you're more than 30 days behind, a late payment will be recorded in your credit file. That could sink your credit scores dramatically because payment history is the most important credit scoring factor. On the other hand, if you have a long pattern of paying on time, this will positively impact your scores.

Understand All the Perks That Come With Your Card

Although premium credit cards are heavy with benefits, even basic cards have some valuable perks. To know exactly what yours comes with, contact the issuer and ask, review the card's description on the company's website, or read the fine print on the application. Some common credit card perks are:

• Fraud Protection. As per the Fair Credit Billing Act (FCBA), all credit cards have built-in fraud protection. This means you won't be held responsible for unauthorized charges. According to the law, your maximum liability for fraudulent charges is $50, but most credit card issuers waive it entirely.
• Disputing Charges. Also part of the FCBA is your right to dispute charges for items you bought that were damaged, weren't as advertised or were never delivered. You have to attempt resolution with the seller first, but if that effort fails, your credit card company should help you out.
• Extended Warranty. Another advantage that may be connected to your credit card is an extension on warranties. If you buy something that has a warranty, your credit card company might add a year to it—as long as you purchased it with the card, that is.
• Travel Insurance. Many credit cards offer some form of travel insurance. If you need to cancel a trip, your card might refund you the cost of the airline tickets or cover the cost of accidents and trip cancellations not instigated by you. Although the policies are often fairly restrictive, they are complimentary, so take advantage!
• Rental Car Insurance. Before springing for the expensive supplementary collision damage insurance sold by rental car companies, which will cover scrapes and dings, check to see if it's included on your credit card. If it is and you pay for the rental car with your card, there's no need to spend the extra money.
• No Foreign Transaction Fees. Traveling abroad is pricy enough—why increase the cost with unnecessary foreign transaction fees? If your card charges them, you'll be adding a few percentage points to each purchase, but many issuers don't. Before you leave, find out if yours waives them.

And then there are the benefits that come with rewards cards. With these products, you can make money as you charge—and score some impressive goodies. Rewards cards come in three general varieties:

• Points. You'll accumulate points with every charge, such as 1 point per dollar spent. When you've racked up enough points, you can redeem them and profit from the transactions. Depending on the card, you may be able to use them for merchandise at the company's shopping portal, turn them into cash, pay for hotel rooms or flights, or buy discounted gift cards.
• Cash Back. The issuer will refund you a percentage of your purchases at the end of the statement period or billing cycle: 1% cash back is common, but several cash back cards offer more. Card terms vary, but typically the money you earn may be used as a statement credit or you may cash it out.
• Travel. Your charges will translate into miles that you can trade in for travel expenses such as airline tickets. So if you want to redeem your points for flights or upgrade flights to a preferred class, a travel rewards card may be right for you. The more luxurious of these accounts provide concierge services, deals on car share companies, free checked bags, paid Global Entry or TSA pre-check fees, access to airport lounges and more.

A good portion of rewards credit cards come with lucrative sign-up bonuses too, where you'll get a fixed number of points, cash or miles after spending a certain amount of money within a set number of months of opening the account. For example, you might earn 60,000 bonus points if you charge $4,000 on purchases in the first three months of opening the account, which could mean roughly $750 in travel redemption costs.

And don't forget about store and gas credit cards. These accounts are affiliated with a retailer and have specialized loyalty programs. You'll get extra discounts on purchases, such as an extra 20% off sale prices at a department store or bonus rewards on gas when you fill up at the station, potentially saving you a lot of money. These cards tend to charge higher interest than other cards, though, so consider all your options before choosing one of these cards.

Take Advantage of Your Rewards

Extracting the maximum benefit from your credit card begins with getting the right account for you. If all you need are the basic perks, you may want to go for a card with no annual fee and simpler offers. Some luxury cards charge annual fees in the $500 range or even higher. They're worthwhile when you get more out of them than the initial cost, but if not, you're wasting money. To identify the best card or cards for you according your FICO^® Score^☉ , Experian's card comparison tool may come in handy. You may want to have separate cards for different aspects of your life: a travel card for traveling, a gas card for fuel and a cash back card for everyday purchases, for example.

Once you have the right cards, remember their benefits and take advantage of them whenever possible. For example, you may want to pay for that new refrigerator with cash. You'd be better off charging it to get the consumer protection benefit, however, including an extended warranty if the credit card issuer offers it. And if the purchase satisfies a new rewards card minimum spend, you'll reap the sign-up bonus as well. So charge it and pay off the balance with the money in your checking account before your payment due date, and you'll reap rewards you couldn't have gotten using your debit card.

Some rewards cards offer rotating categories that allow you to earn more cash, points or miles in a quarter. If yours does, it pays to be aware of them. Let's face it, 1% cash back is good, but 5% is great. You might earn elevated rewards when charging at specific stores or on broad categories like dining out and travel. Visit the credit card issuer's website or use its app to know the current deals, and to learn what's coming in the future so you can plan ahead. But be careful. It can be tempting to overspend just to receive the rewards, but you'll only come out ahead if you maintain a low—ideally zero—balance by paying off your card each month. Use the card for affordable expenses instead of thinking of ways to spend more on items you don't need.

Clearly, credit cards are powerful tools that can be used for more than simple transactions. They can safeguard your purchases, lower the price of your expenses and put real money in your pocket. Does it take a bit of effort and dedication to use credit cards to maintain a debt-free lifestyle? Yes, but when you use them correctly, the benefits are compelling.