Good and Bad Ways to Use Credit

Good Uses of Credit

Build up your credit score. In order to build your credit to prove your creditworthiness to potential lenders, you need to use credit responsibly and consistently.

Use credit in an emergency. While it always is best to have a savings fund set aside for emergencies, credit can be used when an unexpected expense arises and you have no other option.

Consolidate your debt. You can use a loan or a credit card to consolidate multiple debts into one so that your finances are simplified.

Shop securely online. A credit (or debit) card is nearly essential for online shopping.

Track family spending with credit cards. If each family member has his or her own credit with which to make purchases, you can figure out exactly where your money is going and how you might be able to cut back.

Turn a credit card into a low-interest loan. If you have a credit card with a low interest rate attached, then you might consider using it to fund a somewhat large purchase that would require another loan anyway.

Use a loan to make a big, necessary purchase. If it was not for credit, most people would never be able to buy a house.

Use a credit card for safety. Especially when out of town or planning to make a large purchase, a credit card eliminates the need to carry around large sums of money.

Use a credit card for convenience. Especially when out of town or planning to make a large purchase, a credit card eliminates the need to carry around large sums of money.

Make a purchase that appreciates in value. A mortgage loan is considered a “good” debt because homes generally appreciate in value over time.

Earn rewards or cash back. You can get something in return for the purchases that you make anyway if you put them on a credit card with rewards. In fact, you might even want to volunteer to put others’ purchases on your own card – so long as you trust them, of course.

Take advantage of 0% APR. If you have credit card debt that you would be able to pay off if not for that pesky interest, then consolidating your debt onto a new credit card with a low introductory APR might be just what you need.

Take advantage of tax breaks. Some types of debts, such as mortgage loans and student loans, allow you tax breaks.


Bad Uses of Credit

Use credit to extend your income. Your credit cards should be used for their convenience, ease of use, and relative safety – not as a way to make ends meet. If you are using your credit card to make everyday purchases that you cannot afford to pay in cash, then you are on the verge (at least) of debt trouble.

Making small, spur-of-the-moment purchases. If you get into the habit of using a credit card to make tiny purchases (gum, pop, etc.) you will end up spending much more than you would if you paid with cash.

Gambling. That’s right folks, you now can gamble on credit in some places.

Start your own little collection of credit cards. Having too many accounts open and too much available credit is detrimental to your credit score, not too mention that unlimited access to credit cards can cause you to quickly charge up more than you can afford to pay.

Using a credit card for a major purchase. While you should not discount the tip above to turn a low-interest credit card into a loan, you should never put a major purchase – such as a house – on a traditional credit card.

Let others use your credit card. If someone wants to borrow your credit card because he or she has not been able to get one, there probably is a very good reason that credit has not been extended to them! Do not allow yourself to be that at-risk lender.

Go on vacation. You really should not be going on vacation unless you can pay for it out-of-pocket. If you charge the cost of your vacation, then you will be paying for it long after your purchase is useful. This is, in essence, the definition of a “bad debt”.

Use a credit card to pay tuition. Student loans exist for a reason. If you charge tuition payments on a credit card, then you will end up paying an enormous amount in the long run – that is if you ever can pay it off successfully.

Sign up for the first credit card offer that comes your way. Credit card offers are incredibly numerous and varied, so in most cases there is absolutely no reason to obtain a card that comes with an annual fee attached and with a traditional, high interest rate.