Money Talks, So Should You

Make your finances strong with wise use of debit, credit cards

Mechel Glass
by Mechel Glass, Dimespring Contributor  (@CredAbility)

One of the best and easiest ways to stay out of debt and reach your financial goals is to use debit and credit cards for different purchases. One of my basic rules of personal finance is to use debit cards for small, everyday purchases and credit cards for larger amounts, such as hotels and airline tickets. This behavior allows me to keep my spending in line with my budget and qualify for rewards points offered by credit card companies for larger purchases.

READ: Six facts to know about your credit report

When I teach classes on budgeting and credit, many people do not have a strong plan in place to build a budget or to build their credit.

Below are a few questions and answers on how you can achieve both of those goals:

What are some of the key factors people should consider when deciding whether to use credit or debit cards?

There are three main factors to be considered: first, what is the cost associated with the transaction; second, if you use credit, the length of time it will take to pay off the purchase; and, third, if you can save money by using an alternative method of payment without an additional cost.

Once you’ve determined your monthly budget and priority spending plan, always use a debit card to pay for small purchases, ranging from coffee, lunch and entertainment. If there is a purchase that costs a bit more than your budget allows, try to save up for that purchase instead of using a credit card. If you plan to buy $200-300 in new clothes for example, it’s best to save $200 - $300 and use your debit card rather than pay for this purchase with a credit card.

READ: Advice for first-time credit card holders

Finally, if you must make a payment with a credit card, think long and hard about how long it will take to pay it off. If your budget only allows for $100 extra each month once all your bills are paid, a large expense made with a credit card will take several months to pay off.

What are the best actions I can take to build my credit score?

Payment history and the amount owed on your credit accounts for 65 percent of your FICO score, so I recommend careful management of these two areas.  Because payment history accounts for 35 percent of your score, I recommend that you make payments on time, month after month, with no exceptions.  And, if at all possible, I recommend paying more than the minimum amount on your credit cards.

Because payments on the amount owed accounts for 30 percent of your FICO score, I encourage people to carefully watch the amount used on their credit limits.  If you have a credit card with a $3,000 limit, and your regularly owe $2,800, this behavior will not help your score. Using no more than 33 percent of your credit limit – and, if possible, less than that amount – will have a favorable impact on your credit score. The lower the utilization, the better.

READ: Should I check my credit report before applying for a loan?

What’s the best advice to use a credit card to help build credit?

Anyone deciding to use credit cards to build their scores should initially consider their payment habits and their household income. People usually know how much additional credit they can take on. For example, a person that spends $200 per month eating out should consider cutting this expense before increasing the amount of credit.

Keep in mind that most credit cards will have an interest rate associated with it and $200 per month will quickly add up with a 12% interest rate attached to the terms and conditions.

How should people protect themselves against credit and debit fraud?

There are five actions you can take: Monitor your daily transactions by going online to see that there is no unusual activity in your accounts; spend money wisely by using credit cards for major purchases, instead of candy bars, movie tickets and other small purchases; do not share your financial information with others unless they are an authorized user of the debit card or credit card; carry only the debit or credit cards that you plan to use during a summer vacation, mall shopping or car rental and monitor your credit reports regularly.

READ: Is it too late to get your financial life back on track?

The credit report is your ‘report card’ for all of your annual purchases utilizing credit. Make sure that you are scored correctly and you are not a victim of fraud. If you aren’t sure that you can keep up with your credit card payments, stick to your debit card until you have a handle on your spending behavior. You will appreciate your report card down the road when you want to make a large purchase using credit in the future.


Mechel Glass is vice president of community outreach for CredAbility. She is responsible for coordinating community outreach and financial education activities across the agency’s regions and developing new education programs for both classroom settings and online. Glass, a U.S. Army veteran, is also co-author of “The Veteran’s Money Book,” scheduled for publication in April 2014 by Career Press. The book can now be ordered on