If you’ve had a bad experience with credit cards, you’re not alone. Many households struggle to manage their cards. In fact, credit card debt in the U.S. reached $841 billion in 2022, with an average debt of $5,221[1].
When used responsibly, though, credit cards are an excellent tool for managing money and building credit. If you’re on the fence about credit cards after some negative encounters in the past, consider these benefits to rebuild your confidence and restart using credit cards for the better.
How credit cards can help your finances
Many people are intimidated by credit cards because of past experience, a friend’s horror story or simply a lack of knowledge about how they work. But once you understand how your credit habits impact your credit card interest rate and credit score, you’ll find plenty of reasons to ease your way back into using credit cards.
Good credit habits build your credit
The single most important factor credit scoring models like FICO®* use to calculate your credit score is payment history. Making your credit card payments on time every month is vital to building and maintaining a positive credit rating.
Your credit utilization rate, or the amount of available credit you’re using, is the next biggest factor making up your credit score. Keeping your card balances low saves you money on interest while also helping you build credit. If you pay your balance in full by the due date, you don’t even have to pay interest.
Good credit means lower interest
Who cares about your credit? Lenders, landlords, and banks commonly look to credit when making a decision. That means you should pay close attention to it too. If you have good credit, you’ll likely qualify for better interest rates and terms on loans and credit cards in the future.
Some credit cards offer rewards
Some credit cards provide cash back or travel rewards when you use the card. You can earn your way to free hotel stays and flights, or take your rewards in the form of a check or statement credit, depending on the card. As long as you pay off the account in full every month, rewards cards can be valuable.
Credit cards help manage cash flow
As long as you pay off your cards in full by the due date every month, you can use them as an interest-free loan when necessary. If a bill is due in a few days but you don’t get paid until next week, for example, you may be able to charge it and give yourself a few weeks to pay it off before the credit card due date.
How to rebuild your confidence and your credit
One way to get started (or restart) with credit cards is to set a reminder so you never miss a payment due date. It can take seven years for a late payment to drop off your credit report, so paying on time is essential for your credit.
The bottom line
If you use a credit card to pay for an expensive vacation, accessory or new TV you couldn’t afford to buy with cash, you might be on track for more credit troubles. But if you use a card to only buy what you can afford to pay off in full each month, credit cards can provide many benefits, including improving your credit.
For more information about understanding credit and using it to improve your financial strength, see the following articles:
- Why is it important to establish credit when you’re young?
- Is it bad to have no credit score?
- How can I increase my credit score?
*FICO® is a registered trademark of Fair Isaac Corporation in the United States and other countries. Barclays and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Barclays and Fair Isaac do not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. FICO and “The score lenders use” are registered trademarks of Fair Isaac Corporation in the United States and other countries.
A credit score is a 3-digit number calculated using information on a credit report that serves as a numerical representation of a person’s creditworthiness. A credit report is a summary of your credit activity such as the payment history and status of your credit accounts which potential lenders use to offer you credit and on what terms. Your FICO® Credit Score and key factors are based on data from third-party providers who are not affiliated with Barclays. Barclays does not guarantee the accuracy of any credit information that is provided to you by these third parties.
[1] “Average American Credit Card Debt in 2022: $5,221,” The Ascent, June 16, 2022.