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In this episode, MissBeHelpful's Yanely Espinal tells you everything you need to know to master credit cards. The first 1000 people to use the link will get a free trial of Skillshare Premium Membership:

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I'm Yanely, also known as missbehelpful, coming at you via The Financial Diet.

This video is sponsored by Skillshare. If you watched the episode of The Financial Confessions where I sat down with Chelsea to tell her about all my hot mess money mistakes, then you probably already know that I had $20,000 of credit card debt in my early 20s.

And it took me about 18 months to pay off all of that credit card debt. And I was able to do that because I learned how credit works and what does it really take to become a credit card master. Now I was able to do that back when I was a classroom teacher.

I was making a teacher's salary. So I know that if I was able to do it, anybody out there in a similar situation can also do it, too. So let's jump into this.

To become a credit card master, first you have to understand the credit card's purpose. You gotta know why it is that you want or need that credit card in the first place. And you have to know this upfront, before you apply for your credit card.

Now I know that a lot of you are probably thinking, well, I already have a credit card. Or maybe you have multiple credit cards like me. But if that's the case, you're still going to want to reflect on what was the reason why you needed or wanted that credit card when you got it.

And more importantly, you're going to want to think about whether the way that you're using that credit card right now in your life actually aligns to that original purpose. Back in college, I was a low income student. I could not afford to buy a laptop and all the expensive textbooks that I needed for my classes.

So that was my first entry point into opening a credit card. And I used that credit card to buy the laptop and the textbooks. And then I would pay those things off slowly over time.

Now that's fine as long as you understand your terms and conditions. But I didn't. I did not realize that I was using a credit card as a loan and that I was not just responsible for paying back the cost of the textbooks and the laptop, but also all the interest fees that were accruing because I did not pay off my full statement balance by the statement due date.

Anybody who has a credit card should definitely know that you can use the credit card as a free loan. You don't have to pay interest fees on a credit card as long as you pay the full statement balance by that statement's due date. But the problem is a lot of people don't always understand these details.

And we'll get to those details a little bit later in this video. But first, I want to talk more about the reasons why people tend to open up credit cards in the first place. A lot of people open up their first credit card to establish credit or to improve their credit score, while other people say they only open up a credit card to get cash back or to earn travel rewards or travel points or some other type of reward or perk, like, maybe they wanted the sign up bonus, or they might want the in-store discount that you get when you open up a store or retail credit card.

There's lots of different reasons. But the point is that you have to be honest with yourself about your reason, your purpose for opening up this credit card. If you're opening a new credit card because your old credit card is maxed out or because you blew through your paycheck too quickly again, then you're going to want to reflect on your financial habits.

And you might even want to talk to a financial therapist. Because the bottom line is that you cannot become a credit card master if you're swiping your credit cards left and right as if that money was yours. Now that you know why you have a credit card, it's really important for you to understand how that thing works.

Now your credit card is directly connected to your credit score. And there's five credit factors that make up your credit score. But when we're talking about using your credit card on a month-to-month basis, there's only two credit factors that you really have to keep top of mind.

So we're going to talk about those here, which is payment history and utilization. Payment history means that you're making 100% of your payments on time. It means that you never miss a payment and you don't submit late payments, either.

So a really easy hack to make sure that you never risk a late payment is to set up auto pay. And put the automatic payment amount to be equal to your minimum balance due on your credit card. That's what I used to do when I used my credit card every single month, and I wasn't able to afford sending the full payment every month.

But as I started to make more income and get a better handle on my finances, I worked my way up to credit card master status. And now I set up an automatic payment that goes towards my credit card every single month and pays the full balance. So I don't carry over any balances to the next month.

And that's the way that I avoid paying interest fees. When it comes to utilization, all you got to know is that the less you spend on your credit card each month, the better your credit score will be. Now a lot of experts, credit card experts, financial experts, they'll say that you want to stay under 30% of the total credit limit available to you.

But I have to say you probably want to get closer to 10% if you want to be a credit card master. Because that's going to be considered the excellent threshold within the utilization category of the five factors for your credit score. So in order to be excellent and not just good or fair, you actually have to shoot to keep your balance at about 10% of what's available to you on that credit card.

But what if you need to spend more than 10 or 30% of what's available to you on the credit card? Well, in this case, you want to go ahead and log into your credit card account and make a payment. Because when you make a payment, it brings your balance down to a lower amount.

And the balance due on the last day of your statement cycle, which is called your statement closing date, that's the balance that matters the most. Because that's the number that's going to get reported to the credit bureaus and is also the amount that's going to show up as the balance due on your credit card bill. Next up, you gotta get organized.

Now that means that you need to keep track of all the little credit card details and the information that gets really annoying, like your statement cycle dates, your due date, interest rate on your credit card, any fees, like annual fees, or late fees, or balance transfer fees, things like that. And the more credit cards you have, the more you got to keep track of. So if you know that you're going to get easily overwhelmed by keeping track of all this stuff, then you want to make sure that you only have one or maybe just two credit cards.

One of the easiest ways to keep track of all this information is to do what I do, just do it from your phone. I download all the apps that go with each of my credit cards. And I log in to check up on my accounts.

I look for bills that are due, any past statements, any fishy activity that could be fraud, perks that I could take advantage of like promotions or any cash back balance that I could use to pay off the current credit card bill that I owe for that month. And if you're ready to level up and set up auto pay, you could definitely do that right from the app. That way you don't even have to risk submitting a late payment.

If I'm being honest, I log into my credit card apps a couple different times every week just to make sure that there's nothing fishy and make sure everything looks good. And if I have any questions, I do not hesitate to contact my credit card company and ask them. Now I talked about leveling up with your credit card by setting up automatic payments.

But there's definitely other ways to become a credit card master, too. One of them is to take full advantage of rewards or perks that your credit card has to offer. But you have to be careful with these rewards.

Because a new survey from 2020 shows that the majority of rewards card holders actually miss out on the rewards that they're supposed to be taking advantage of. This was a bank rate study done in January of 2020, so it's pretty recent. Now it's important to know that if you're going to be using your credit cards the right way, which means not relying on them and paying the bills in full, not paying interest fees, then you're in the position to take full advantage of rewards and perks your credit card might have to offer.

So for example, what I do, I use my credit card every month to pay off all the things that I'm going to need to spend regardless whether I want to spend money on them or not, things like food and groceries, things like my bills, things that I'm shopping for throughout the month that I really need. And then, at the end of the month, I pay the full balance off completely. So I never actually carry over a balance to the next month.

And I never pay any interest fees. This actually makes cash back worth it for me, because I'm getting a little bit of money back for spending that I was already going to be doing. But the problem is that some people use their credit cards to buy things that they can afford to pay back in full.

And they think that they're using their credit cards like a credit card master would to get cash back. But the cash back is basically canceled out by all the interest fees you're going to end up paying if you don't pay your credit card bills in full each month. Rewards and perks are great.

But only if you're actually taking advantage of them and getting them for free, or as close to free as possible. Finally, a credit card master knows what not to do with their credit card. There's a couple of different things.

But the most important one is to avoid becoming dependent on the credit card. If you notice that you're spending more and more each month on a credit card, but you're not able to make the full payment, then you might want to pull back and reassess your situation. Don't forget that that credit card is a loan.

And unlike other loans that usually come with a single digit interest rate, like student loans or personal loans, a credit card is a really high interest rate type of loan. So you want to make sure that you're super careful not to end up in a trap of a cycle of debt where you're paying really high interest rates to your credit card company. Another thing not to do with your credit card is take out a cash advance.

That means that you stick your credit card into an ATM machine and take straight up cash from your credit limit available. Now this is the worst type of debt that you can take out with a credit card, because unlike your regular credit card spending, which doesn't begin accruing interest until after your due date, when you do a cash advance, your interest begins accruing immediately. There is really no grace period involved at all.

Another thing that you don't want to do is ignore any suspicious charges. Because this can mean that somebody hacked your credit card and might even have access to more private information than just your credit card details. Even a charge of, like, $0.01 or $0.05 should be taken really seriously if you didn't authorize it.

Last, but not least, you want to make sure that you are not feeling like you're stuck with a credit card that you have if it's a really terrible card. For example, if you have a really high annual fee, and it's just not worth it for you for whatever reason at all, you cannot be afraid to call up that credit card company and ask them to either waive the annual fee or to change that card that you have. You can maybe ask for a product change, which allows you to be offered a different credit card that that particular company has in their suite of products that maybe doesn't come with an annual fee, or maybe it's a significantly lower annual fee than the one that you have.

These are all things that a credit card master would take advantage of. You're already well on your way to becoming a credit card master by watching this video. And I bet you spend time learning about credit in other ways, like reading blog posts or watching other videos that help you learn more, really just soaking in knowledge related to credit cards or credit in general.

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