The Magic of A Credit Card And How To Use One Properly

Welcome back and happy new year to you, readers. It’s 2025, a brand new year to look forward to.

Most of us have accumulated enormous bills during the holidays—from buying gifts, hosting dinners and throwing parties. I mean, the cost adds up really fast when you’re surrounded by the holiday breeze and nobody can fight it! If you are one of the smart individuals who charged every dollar to your credit card, then you have plenty of time to gather the money to make a payment. But for those who used their debit card or cash, then you’re checking account is probably looking dry at the start of the year, hanging on for dear life. But fear not, for the arrival of the new year also brings the chance to fix some things in our lives to make us wiser, financially. For this particular article, let’s include this in our new year’s resolution list: to start using a credit card for our expenditures.

There’s an endless debate when it comes to the use of credit cards. Most business people and finance-savvy joe’s swear by it, while others who haven’t used one avoid it like a contagious plague. I was also one of those individuals who shunned the thought of having a credit card as I deemed having debt as dangerous. At the same time, I didn’t have any knowledge on how to use one, afraid to commit a costly mistake. And yes, to a certain extent, owing money is not healthy for your finances. But as any finance geek will tell you, “not every kind of debt is bad, there is such a thing as good debt.” More so, if you are confused about how a credit card works, then let me be the one to convert you to start utilizing one of the best inventions of humanity—and that is, to use the magic of time and institutional money to levarage your expenses in the form of a plastic card. When I learned how to use this tool properly, I’ve completely switched out from paying with cash or debit to using my credit card exclusively for everything.

What is good or healthy debt anyway?

Good debt, to me, is money owed to a lender that you can easily pay off without affecting your finances. Think about a friend who will upfront the payment for all the purchases that you accrue, and at the end of the shopping spree tells you, “don’t worry, I trust you. Just pay me in a month.” Done deal. Are you telling me that I get to buy all the things that I want, use somebody’s fund in any way I desire, without shelling out a single dime out of my own pocket!? Wait, I have thirty days to pay!? Isn’t this heaven on earth?

Yes, whatever you read from the previous paragraph is all true. You can definitely buy whatever you want as long as you have the finances to pay off everything that your statement will reflect. But don’t get too excited and start maxing out your credit card. Let’s jump into the basics first.

The basics of a credit card and why you should use one

To simply put, a credit card is borrowed time and money—a type of deferred paymen geared to your advantage, as long as you play the game right.

Who lends you the money? The bank.

Why will they borrow you money anyways? Because through your business, they can collect a percentage of sales from payment processing services. The more you spend, the more they earn.

The bank allows you about thirty days from the date that they post your statement to pay off any charges. Banks usually compile your spending transactions on a monthly basis. In my case, the start of my statement is on the 29th of every month. Let’s say, we’re in the month of December. So, from December 29th all the way to January 28th, whatever transaction I incur during that time period, will reflect on the statement that the lender will send me. Let’s say that I incurred $5000.

The bank will tell me “Hey, here’s your statement summary from Dec. 29th to Jan. 28th. No rush and enjoy your new year. Your last day to pay up is on February 26. Take your time, but hurry up." They don’t talk like this. I’m just making it seem more friendly.

So, if you think of it, from December 29th-January 28th, I was able to pay for all the things that I needed to spend on without any out-of-pocket cost, while I work my job and get paid, while my money accumulating in my bank account. This gives me time to gather my resources to pay off the $5000 that I owe due in about 30 days. Ponder on this for a second, for this is where the magic lies:

Based from the example above… The transaction(s) that you incurred on December 29th will have at least 59 days before you even have to pay for them on Feb 26th. 59 days!!! 

Now think about this other scenario: From December 29th-January, you have been using your debit card or cash to pay off $5000 worth of expenses everyday. January 28th comes and you’ve already bled your account dry. -$5000 already left your checking and you haven’t even started Februrary yet. See the difference?

The most important aspect of having a credit card, which I personally like, is that credit cards protect you from fraud, scams and unforseen events in life.

A credit card will protect you from a defective product or service. If something you purchased arrived damaged, you can, most of the time, reach out to the vendor and claim a refund. If you ordered Ubereats and the food arrived unrecognizable and inedible, dispute it! If they do not set up a refund, normally your bank will be the one to speak to them and return your money back to you without having to worry about it.

Traveling abroad and your credit card got stolen? Don’t worry. Just call the bank and tell them to freeze your card. This will reject any transaction that the robber might put on your card. If in the event that the thief was able to charge a couple of transactions, you can easily dispute them. Compared to a debit card, you can never get that money back. Cash? sheesh, don’t even bother. Once it’s stolen, it’s just a headache that’s hard to forget.

If you get into an accident that will require you to pay upfront until your insurance reimburses you, at least you’re using someone else’s money to pay for it. Think about the 30 days that you have before you settle that medical bill.

Credit Score and Credit Utilization %

In the world of credit cards, there is a thing that we call a Credit Score or simply put, your behavior when it comes to providing on-time monthly payments. A credit score is a numerical number between 300-850. If you have a credit score of between 780-850, then banks will go crazy for you like you’re the only spender in the world. This is when banks will try to fight each other (well, not literally), to get your business because they can see that you are a responsible spender (prepare your mailbox for unwanted temporary credit cards that are activated already). Be in the 300-550’s and forget about even asking for a cheeseburger, your credit card will get declined or the bank will charge you triple by imposing jaw-dropping interest rates!

If you’re a first time credit card owner, the bank will deem you ask a risk since they don’t know anything about you. They don’t know whether you’re a good credit card user or not. But luckily, financial institutions are equal opportunity folks and they start you with a neutral score of about 600-700 (it may vary). Whether you go up or down from there will depend on your behavior. In order to be pleasing to the eyes of the lenders, they look at two basic things:

1.) If you pay on time. As long as you pay within 30 days from the statement date, then your credit score will go up. Want a credit score booster? Banks will even be happier if you pay them earlier! If your statement was posted on the 1st of January, then pay them within the same day or by the next and you will see your credit score go up at least 3-5 points instantly.

2) If your credit utilization doesn’t exceed more than 30% of your credit limit. When banks issue you a credit card, they give you a maximum limit of how much you can spend. Let’s just say that you were given a limit of $1000. You can’t go crazy and max out your credit card every time. Nope, your score will go down. This makes you look desperate to use every penny that they give you. The sweet spot is to only use about 30% or less of your limit. Oh yes, life emergencies happen and if you really have to max out your card, then do it, but in order not to lose any points, pay it off within 1-3 days after. 

Now that you have this knowledge, then you can go ahead and start using your credit card. And when the payment day arrives, pay attention to the following:

Current Balance: This will reflect your current expenses + statement balance. In example: Dec. 29th-Jan. 28th expenses + let’s say, Feb 1st-5th expenses will be included. If you’re trying to look pretty in the eyes of the banks, pay the whole amount, but it isn’t necessary.

Statement Balance: This shows the amount of money that you only need to pay for that payment cycle. If you pay off this amount, then your past month’s statement will be paid off and your account will only reflect the current expenses that are not due yet. This is what you need to focus on. Pay this and you’ll be fine.

Minimum Payment Required: A fraction of the amount you owe (normally between 2-5%) that banks allow you to pay in order to have a good standing and to avoid late fees. It makes you think “Oh look, I don’t have to pay the $5000 that I owe this month.” This is a misconception and is very dangerous. Here is the thing: your balance carries over to the next cycle and on to the next. Paying the minimum payment required doesn’t save you from interest rates. So let’s say that you have a fixed $5000 expense every month. If you only pay the minimum payment required every single month for a whole year straight, by the end of December, you will owe at least the principal of $60,000 + 20% APR rate, that’s like $70,000 in interest. Jeez. If this happens to me, I don’t know how to move on from this.

What happens when you fail to pay your credit card statement

If you’re late by a day or two and didn’t do it intentionally, you can call your bank and ask them to wave any penalty. But avoiding to pay intentionally has repercussions. Banks charge a certain interest percentage in the form an APR or Annual Percentage Rate. This can vary from 1%-30%, sometimes even more. If you do not pay your credit card, those charges will incur a hefty interest, just like our sample above. In addition, you have to pay any late fees imposed by the bank. Lastly, your credit score goes down. This is the scariest thing to happen.

What a high or low credit score can do for you

Your credit card is a gateway for wonderful or horrific opportunities. It’s like your passport to the financial world. If your passport is blue and you don’t have any criminal charges, then the immigration lets you in. They might even tell you to renounce your citizenship and offer you tax-haven benefits to entice you. So be sure to take good care of your usage.

A high credit score can get you a very low interest rate when you’re ready to purchase your dream car, dream house or even when just borrowing money from the bank. Thanks to my credit score, when I applied for an auto loan, I got a wonderful 3.54% rate. I wasn’t paying a lot interest rate when I was conducting my monthly car payments. When I talk to other people, they get a 14-17% rate,  which means that by the time you’ve paid off your car, you’d end up paying double the amount!

A low credit score will give you a hard time buying anything, especially when you’re trying to borrow or purchase expensive items. Car dealers will probably turn you down or impose a hefty interest rate. They’re doubting you so much that they may even ask for a guarantor, meaning, they will ask somebody you know to sign a contract saying that in the event you default on your payments, they will come after that person for money. Having a low credit score when buying a house, forget about it.

Things that affect your score

1) Number of credit lines

Having 2-3 credit cards are fine, as long as you open them staggered. If you open 2-3 credit cards every month or year, then that can lower your score. Also, they check whether you do use all you credit lines on a consistent basis.

2) Length of Credit History

The longer the age of the credit line, the better. It shows your consistency when paying off debt. When the banks see that you have established a suffient amount of evidence of good history, give or take about 5-10 years, then you can start asking for a credit line increase.

3) Utilization %

Like previously mentioned, making sure that you stay between 10-30% is the sweet spot for avoiding any red flags. 

4) Types of credit / loans

Institutions want to see whether you can manage different types of debt such as credit cards, car loans, home mortgage, personal loans and other products. It shows that you’re versatile.

5) Paying off debt according to agreed timeline

When you apply for a loan for 5 years, make sure to pay it off in 5 years. Paying early will incur penalties and will definitely lower your credit score.

The cherry on top

Loyal and responsible credit card users are rewarded with points and other benefits. These points accumulate every time you transact using your card. There are millions of ways on how to redeem your points and that will depend on your bank and what available programs they have set for their clients. Some people get to travel for free, some people get cash back and some become part of an elite spenders’ club and gain exclusive invites catered to these handful of people. Whatever it is, you can never get that from using your cash or debit card. If you think about it, there’s nothing really negative about having a credit card as long as you are responsible.

My only tip in making sure that you are utilizing your credit card properly is…

DO NOT SPEND MORE THAN WHAT YOU CAN PAY. This is where people fail. They think that having a credit card is an infinite source of money and they become careless. Control thy expenditures. As a beginner, I suggest you use your credit card for one transaction only, let’s say, your commute expenses or phone line. Just place a small amount of charge there and see how you can manage to pay it off on time. The more you get the hang of it, then begin to put more transactions in. Banks wants to see your consistency when using a card, the more transactions you have (dont forget the 30% utilization rule), the more that they will trust you. 

So there you have it folks! Start using a credit card and abide by the laws that govern this wonderful invention. Having control over your credit card expenditures means having control of yourself.

Cheers to a wonderful new year!