Here's How To Make Credit Cards Work For You

If you are smart about it, your credit cards could make your financial life much better.

Matthew Frankel, CFP
Matthew Frankel, CFP
Apr 19, 2014 at 1:38PM

Are credit cards bad or good? This is far too complicated of a question for a yes or no answer, but just like everything else in life there is a right way and a wrong way to use plastic to pay for things. When is it worth it to charge things? Is it OK to carry a balance? Here are a few insights into "credit card economics" you can use to enhance your financial life.

It's bad to carry a balance, right?
Not necessarily. It's bad to carry a high balance from month-to-month, but don't think you need to pay your balance off in full every month in order to maintain the best possible credit score. In fact, according to, the average high achiever (consumers with a FICO score above 800) carries a balance equal to 7% of his/her total available credit line. So, while not carrying a balance saves you money on interest, your credit shouldn't suffer as long as you keep it relatively small.

So, if you need to charge something you won't be able to pay off right away, don't panic.The point here is creditors want to see you using your credit, but they want to see you using it responsibly. Maxing out your cards is not responsible, but charging a moderate amount of expenses is.

Pay with plastic and make money
One strategy used by a lot of high achievers involves having one or two credit cards which are used constantly. In fact, the cards are used to charge every single thing they would normally buy anyway. Things like meals, gas, groceries, and other day-to-day expenses. Then the balances are generally paid in full (or close to it) at the end of the billing cycle.

This works to your advantage in two ways. First, if you charge something, the credit card issuer generally doesn't charge interest for the first 30 days. This means you are essentially getting an interest-free loan for a month, during which time your money stays invested and is working for you. So, by charging every day expenses, you actually make money!

The second reason to pay for everyday expenses with plastic is the "rewards" this earns you. My favorite is my Delta SkyMiles Platinum American Express card because I love to travel, but there are cards offering everything from hotel rewards to gift cards to cash. Some have very good rewards, and they generally correspond to 1-5% of your purchases.

Shop around for the best rewards
The best rewards for you depend on your personal preferences, but a good place to start is this list. Bear in mind that most reward cards charge annual fees, so make sure the perks of the card you choose outweigh those expenses.

For example, my Delta AmEx that I mentioned above carries a $150 annual fee. However, on top of the airline miles I accumulate, I also get free bags for myself and whoever else is traveling on my reservation. So, if my wife and I take just two round-trip flights this year, the "free bags" perk will more than pay for the cost of the card, making the miles I earn effectively "free."

Another good example is my Best Buy Reward Zone MasterCard. The card has a $59 annual fee, but I get 5% back in rewards on all of my Best Buy purchases. So, if I spend $2,000 at Best Buy in a year (it's my favorite store, so I always do), I'll get $100 in free merchandise, again paying for the annual fee.

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How many cards should you have?
There is no good answer to this, but different cards are better for different types of purchases. For instance, a department store credit card might give you 1% in rewards on most purchases, but could give up to 4-5% on purchases made in the store itself. A hotel-branded credit card might carry special perks while traveling. A card issued by a furniture store might give you interest-free financing for several years.

The actual number of cards you have isn't too important, and between four and 10 seems to be the consensus of the experts. The important thing is using the cards you do have wisely, and establishing an excellent record over a number of years. If you use your credit cards responsibly and are smart about it, not only could your credit score benefit, but you'll get a lot of nice perks as well.