No one’s talking about their credit card usage or budgets they’re following. But we all know we should be doing both so let’s clarify the best steps into getting rewarded for your credit card usage and feeling good about your spending.
Credit Cards 101
Credit cards can be the savior to building your credit which in the long run can give you the ability to purchase your own car, house, get approved for an apartment and so much more. They can also be the devil to your credit. You want to build long-lasting and consistent credit so you have a credit score that you can be proud of.
You may hear nightmare stories of people swiping their credit card right and left. Or going into thousands of dollars of debt because they’re spending money they DON’T have! I’m breaking down the credit card system to simplify getting the most out of your credit cards and how I’ve built a credit score over 750 in the last 5 years.
What goes with Credit Cards better than following a budget? Nothing. We’re diving into budgets, don’t run away at the sound of a budget. We’re putting an end to being “too scared to know what I spend” today because this simply won’t get your finances to where you want them to be.
It is so important to be aware of how much you’re spending, where it’s going, ensuring you’re not spending more than you’re making and more. I’ll even be giving you the exact expense sheet that I use to track my monthly budgets for your own personal use!
Let’s dive into it and have you owning your expenses!
I HIGHLY suggest reading this book no matter who you are. The author dumbs down finances into a way you can understand what he’s talking about and to learn how to start handling your money.
The book covers: Paying debt, everything you need to know about credit cards, 401K, Roth IRA, Savings Accounts, Budgets & more!
Credit Cards Can Become Your Best friend!
Credit cards get a bad stigma. The fear of over usage, debt and the unknown scares people away. But most don’t realize how IMPORTANT a credit card is early on to begin building your credit. At such a young age it’s hard to build your credit (we aren’t getting car loans or home loans any time soon) so credit cards are the way to do it.
Here are my biggest suggestions when stepping into the credit card world:
Do your research - Never apply for a credit without shopping around. You want to know all about the rewards, interest rate (APR), annual fee and more before applying.
Applying will give you a hard inquiry - When you apply for your credit card you will more than likely get a “hard pull” as its known. Meaning the credit card company is pulling your credit history and score which gives you a “hard inquiry.” Every time you get a hard inquiry you can expect your score to drop anywhere from a few points to 50. Yeah, it’s a big deal when applying don’t take it lightly.
My #1 Credit App you need to download! - Credit Karma has saved my life time and time again and it’s FREE. Credit Karma will pull your credit score every day and any day at no charge. Yes, pulling your credit score does cost you something. Being easily able to check your credit score at any time is a HUGE advantage and keeps you in the know. It also has the ability to check for fraud that is pulled from your social security number and ensure no one is committing fraud to your SSN or accounts.
Use Credit Karma when researching - The best feature Credit Karma offers is the “Approval Odds” that they give you for possible credit cards you may want to apply to. It is able to tell you if you have “Fair Odds, Good Approval, Great, etc” depending on the credit card. This is so important early on when you’re just establishing credit because you don’t want to be getting more than 3 hard pulls a year on your credit and 1 credit card application will be your 1/3 pulls. So you MUST be careful when applying to cards and only apply to credit cards you have good approval odds so you don’t take a credit hit for nothing.
Take note of your credit limit & only use 50% usage a month - You will receive a credit limit on any card you receive. This is your monthly limit the credit card company allows you to spend on your card. For example, a credit limit of $1000 means I can spend up to $1000 a month on the card. When establishing your credit it’s important not to be maxing out your card. This shows “over usage” on the card. It’s not the end of the world if you do this but remember the higher you spend you do have to pay it off in full at the end of the month. Try to limit your spending only up to 50% of the limit. You will see Credit Karma will tell you how much you’re spending in usage on your cards.
ALWAYS pay off in full & set up Auto-Pay - This is the BIGGEST piece of advice and only thing you should take from this if you only take one thing. It’s so important to pay off your card if you only want to reap the benefits of credit cards. If you start only paying the “minimum payment” you will suffer, fast. Only spend on your credit card in the 30 days what you can pay back. I highly suggest setting up auto-pay to pay your statement balance on your due date. You will never make the mistake of missing a payment and then getting a late fee (something I’ve done and gotten out of twice and will never make the mistake again.
You know your spending best - Some handle credit cards wonderfully and others can’t be trusted. You know yourself best and which you fall into. If you are someone who gets crazy when it comes to spending on a credit card because you don’t see the charges withdraw out of your checking account right away then HOLD BACK. I suggest opening a credit card and only putting maybe a few charges a month on it and paying it off in full every month.
For example, you could only put 1 tank of gas or 1 bill payment on your credit card a month. This way it’s being utilized but not endlessly used. If you can’t be trusted I highly suggest not carrying your card with you. Put 1 payment on it that can be paid online and keep the credit card in a shoe box in your closet if you have to so you don’t touch it.
Never close credit cards - When you begin to advance your credit cards you will notice yourself stop using credit cards you used to use all the time, such as your first credit card. Do NOT close any of your credit cards! I repeat never close a credit card. You want to gain a long history of credit usage and when you cancel cards you’re not showing a long history. You also can get hit when closing a card on your credit score. If your credit card has a $0 Annual fee meaning the card is free to have then just put it in an old shoebox and never touch it. Never close your first credit card if you don’t have to or it will HURT you.
Credit Cards = Rewards - This is the biggest advantage to credit cards. We get to reap the rewards just by being rewarded for spending. AKA something we would be doing anyways on a debit card or check. So why not get rewarded? Do your research if a cash-back credit card, travel rewards, etc. would be right for you. As you dabble into travel reward cards your annual fee could increase and not be $0 anymore but if you do use the benefits it’s worth it.
Read more about which specific credit cards I use to reap rewards and what I personally love HERE.
Track Your Expenses
Get a copy of my budget expense sheet HERE.
This is so important for you to know! As you start to have more and more money you’re earning and in your name you need to know how much your lifestyle costs, how much it costs to live and survive and what your monthly expenses look like. People ignore tracking expenses or creating a budget and turn a blind eye to this so they don’t have to face their monthly spending and irresponsible purchases. This isn’t something to make you feel bad about your spending! Tracking your expenses keeps you in the know and aware of what you cost. It’s SO important to know where your money is going, what the charges are being put on and when your payments will be withdrawing.
I personally have tried out the app Mint which automatically creates budgets for you, tracks your spending and categorizes all your purchases. My Type A in me got frustrated it was categorizing incorrectly and I didn’t want to miss anything (this is a great first step if you want something easy and efficient on its own). I then moved to tracking my expenses on an excel sheet - it’s not as crazy as it sounds. I separate all my purchases, bills and income in different categories to accurately track where things are going and get a good overview of what my monthly costs look like. You do not need to be inputting your expenses in every day or even every week. I sit down 4x a month and input my expenses since last time I did it. I just pull up my credit card accounts, checking, etc. and input where money has gone since I last input information.
Don’t turn a blind eye to your finances because you’re scared to face your purchases! You make the conscious decision to buy what you buy and you’re just hurting yourself in the end by “not wanting to know what you spend.” Here’s what my tracking looks like!
You can also use apps such as Mint which will link up to all your accounts and allow you to set your own budgets. The app will automatically categorize purchases and expenses for you and see how close or far you are to reaching your budget. If you’re just getting started this is a great way to start tracking your budget! A lot of these apps are free so there’s no excuse!
I share my experience on doing a “No Buy Month” where I saved up to $600 by not buying any extra material items for 30 days. This can help you save hundreds a month! Read about “No Buy Month Spending” here.
Click here to get a copy of my expense sheet to us for your own budget!
Everyone’s financial situations are unique. If you want to chat about your unique situation and what I would suggest, let’s talk! You can send an anonymous or personal email here and I will get back to you within 24 hours! Own your finances my friends.