We’re getting smarter about our credit cards: According to new Gallup research, more Americans are relying less on them. In fact, credit card ownership is at an all-time low, with 64 percent of those surveyed paying off their balances in full each month, the highest percentage Gallup has recorded.
Still, we can get even more clever with credit, especially since there’s power in wielding plastic as long as you do it the right way. Want to know how to beat the banks at their own rules? Read on for eight great tips.
Ask for a Lower Interest Rate
First, the good news: Two out of three credit card holders who ask for a lower interest rate get their request honored. A bank won’t lower your interest unless you ask, so consider calling if you’ve had an account for a long time and show a good payment history.
Now the iffy part: Sometimes, a bank may consider this new deal as a request for new credit, which activates a new credit check that can take a toll on your credit score. Make an anonymous inquiry to your credit card company first to find out their policy on altering interest rates. If they do it with ease, then it’s time to bank on the savings.
Consider a Limit Increase
Do you find that your balance is moving too close to your credit limit — even if you pay it off in full each month?
“Many love to use their credit card for just about everything so they can earn rewards,” says Gerri Detweiler, director of consumer education at Credit.com and author of Reduce Debt, Reduce Stress. “Still, you may be hurting your credit scores.”
Request a higher credit limit to protect your credit rating. By boosting the gap between your balance and your credit limit, your credit utilization (the amount of credit you’re using versus the credit available) will stay lower as you reap reward points. Caveat: Use this strategy when you have the hard cash to pay off those bills monthly. You need to be a disciplined credit card user to pull this off.
Move Your Due Date
Why settle for the payment due date your credit card company gave you? Make payments slip-up-proof by calling your creditor to change the date to one that works best for your paycheck cycle.
It can be as easy as a toll-free call to your creditor — and the request is almost always approved.
Even when you move your payment due date, it’s often better to pay credit card bills mid-cycle (if you’re carrying over a balance) than at your due date. “The balances that appear on your credit reports are usually based on your balance at the end of your billing cycle, not after you've made your payment and paid it off,” says Detweiler.
“One strategy is to go online to make a payment early — a few days before the end of the billing cycle — so that the balance that gets reported to the credit bureaus is lower,” Detweiler adds. When you’re seeking to pay down a debt or boost your credit rating, this plan can help.
The Secret to Avoiding Interest
Thanks to the consumer protections of the CARD Act of 2009, plastic users who do not carry balances month to month and have signed up with a credit card that offers a “grace period” have at least 21 days from the time of purchase to pay off the charge in full without accruing interest.
Note: Grace periods do not include balance transfers or cash advances.
Double Dip Rewards
One of the best reasons to use credit? Taking advantage of the rewards, whether they’re airline miles or cold hard cash.
Detweiler is a huge advocate for this and says you can double dip on rewards by being more strategic. “Let's say your credit card gives you reward miles for each purchase. You then use a portal or program that also earns you even more rewards,” says Detweiler. Credit card websites usually offer their own portals, like Chase Ultimate Rewards and Discover Deals.
For example, book accommodations on a travel portal like the Hilton HHonors reward program, which offers points for booking through it. Then charge the trip on a credit card that also offers a rewards program so you get points for both Hilton stays as well as on the credit card you paid with.
Of course, look out for deals like this only if you’re already in the market to make these kinds of purchases. Adding a few points here or there without accruing enough to reap the rewards could be a waste of time.
Plan Ahead When Traveling
It’s often easier to use plastic when you travel abroad, but choose the right card, says Detweiler. “If you are going to be traveling overseas, make sure you have a card that charges no foreign transaction fees. [They] can add 2 to 4 percent to the amount you purchase.” All Capital One and Discover credit cards waive this fee, as well as some AmEx and Chase cards. NerdWallet has a full list.
Another tip from Detweiler: If the merchant gives you a choice to make your purchases in the local currency or U.S. dollars, choose the local currency. “The option of paying in U.S. dollars is called dynamic currency conversion, and it's almost always going to be more expensive,” she says.
Bring Down Your Balance
When you carry credit cards, this mantra can’t be repeated often enough. Wielding power with plastic starts with paying your bill in full each month.
Still, maybe that’s not possible this month and you want to know what the next-best option is. Here it is: “With most credit-scoring models, you want to stay 20 to 25 percent below your credit limit at the most,” says Detweiler. “One of the factors most credit scoring models look at is the ratio of your balances as compared to your credit limits. If you charge a lot, this ‘debt usage’ ratio may be high.” So if you can’t pay it all off yet, aim to hit that sweet spot.