Credit Cards As A Tool To Financial Security

Feb 06, 2021
The ChooseFI International Foundation has partnered with CardRatings for our coverage of credit card products. The ChooseFI International Foundation and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. Disclosures.

For many people who are just starting to learn about financial literacy, credit cards may seem intimidating.

And if you have had a difficult time with credit card debt, you may have sworn off credit cards completely, choosing to stick with debit cards.

But here's the thing. 

Credit in general, and credit cards in particular, are tools.

And as with most tools, if used judiciously, credit cards can be a force for good in your daily and financial life.

Used in a careless fashion, though, and it can harm you.

Thankfully, there are some basic ideas and best practices that any one can use to safely and beneficially employ credit cards as way to improve their money situation.

In this post, I am going to provide an overview on the following topics:

  • What is your credit score, and why it matters.
  • How to beef up your credit score.
  • How to make credit cards work for YOU.
  • Credit cards to consider.

For a deeper dive into credit, check out this article on

What is your credit score, and why it matters.

Your credit worthiness is determined by your FICO score. The Fair Isaac Corporation (FICO) determines your credit score by:

  1. Considering the pattern of your previous credit usage
  2. How much of your credit you actually use (hint: the less you use, the higher your FICO score)
  3. Whether you've paid your bills on-time
  4. Occurrence of massive shocks to your credit, such as bankruptcy and delinquent debts
  5. Reviewing how often you applied for new credit.

Here is a rough breakdown of the weight of each characteristic:

  • Payment history (30% to 35%)
  • Current outstanding debt ((about 30%)
  • Length of credit history (15%)
  • New credit (10% to 15%)
  • Credit mix (10%)

And here are the general credit score brackets:

  • Excellent credit: 750+
  • Good credit: 700 – 749
  • Average credit: 600 – 699
  • Bad credit: Under 600

Some definitions:

Length of credit history: starts from your first credit account. If you opened a credit card account with a limit of $100 at age 18 and you are now 28, your credit history is 10 years.

Credit mix: the various types of credit available to you, credit cards being one of the mix. The more credit variety you have, the better your score, so if you have credit cards, a car loan, utilities, and a mortgage – that is a better credit mix.

Your FICO score is measured from 300-850. The higher your score, the more likely you'll receive additional credit. Pay your bills on-time, don't carry too much debt, and don't apply for too many extensions of credit.

How to build up your credit score.

If your credit score has taken a hit recently due to late payments or applying for too many lines of credit, you should work to fix it.

It's not a fast process, but if you take the steps we discover, you can recover.

  1. The first step is to keep your unused lines of credit open. One the components of your FICO score is how much of your available credit you are using - the less you are using compared to the total amount of credit you have, the more credit-worthy you appear to lenders.
  2. Figure out which of your expenses are the most important. For many people, this would be the home mortgage (or rent) and auto loan. Earmark some cash for your food and groceries, then make sure your utilities are paid.
  3. After you have taken care of your living expenses, pay down your debt in order of highest-to-lowest APR if you want to make the biggest dent on your credit score.
  4. Do not open new lines of credit - this will hurt your credit even more.

Since payment history affects your credit score the most, ensure that you budget your money to make minimum payments on all your bills at the very least. And then, if you have more funds left, pay down the loan with the highest debt.

Debt Repayment Strategies 

This technique of systematically paying down the loan with the highest interest rate is sometimes called the Debt Avalanche.

The Debt Avalanche makes the most mathematical sense because you end up paying the least in interest over the medium to long term. Here's how it works:

  • Make sure you have enough to cover your living expenses and a 6-month Emergency Fund.
  • After that, pay just the minimum monthly amount on all your loans to avoid added interest, penalties and fees.
  • Then plow the rest of your remaining funds into the loan with the highest interest first. When that is paid off, start on the next highest-cost loan.

There is another way that people use to get out of debt, called the Debt Snowball. This approach works for many people who want to focus on small, quick wins first. You may pay more in interest, but sometimes you just want to feel a sense of agency and traction, and paying down smaller debts first could give you the motivation to keep going. Here's how it works:

  • Make sure you have enough to cover your living expenses and a 6-month Emergency Fund.
  • After that, pay just the minimum monthly amount on all your loans to avoid added interest, penalties and fees.
  • Then put the rest of your available free cash into the smallest loan, with the goal of paying it off completely. When that is paid down, start on the next loan. 

Whether you use the Debt Avalanche or Debt Snowball methods to tackle your debt, don't be disheartened if your FICO score is on the lower end. You just need time for your money plan to take hold and work.

Using Secured Credit Cards To Build Your Credit Score

Another idea to help you rebuild your credit score is to apply for a secured credit card. Secured credit cards require collateral up-front to receive a line of credit, and you will not be able to spend more than this collateral in the beginning.

There are 2 advantages to this:

  • You are limited by this amount to spend, forcing you into not overspending.
  • More importantly, each time you make a payment on this card, it is reported as an on-time credit payment.

Some good credit cards that will help you build your credit score if you have no, or limited, credit history are (FICO Score: New, or under 600):

And if your credit score is between poor to average (FICO Score: 600+), you might also want to consider the following cards:

Boosted Your Credit Score? Great, Now Use It To Your Advantage 

Once you have gotten your credit score back up into the Good range (FICO Score: 700+), a new level of credit cards become available to you that you can use to improve your financial outlook. 

But first, some rules of the road to make sure you are using these credit cards in a responsible manner. 

  • If you are still paying off debt, be extra cautious about using these tactics. You do not want to dig yourself into a deeper hole, so use these ideas very sparingly, and only where they clearly work in your favor. 
    • For instance, when you are trying to pay down debt, using 0% balance transfers might make sense, as well as one or two targeted cashback cards to earn a cash bonus. But the travel rewards strategy should probably wait until you are out of debt.  
  • Pay attention to the terms and conditions. You do not want to get hit with penalties and fees, or miss out on a bonus or offer, by not knowing the specific terms that come with each credit card you apply for.
  • Do not spend money you do not have just to earn cashback or travel rewards. If you cannot pay off the debt in a timely manner, the additional interest payments will outweigh any gains you make from cash back or free travel.

And with those caveats out of the way, lets look at three ways you might be able to use credit cards to further financial well-being.

Balance transfers

If your credit score is in the 700+ range, and you have existing credit card debt that come with a high interest rate, here is some good news, you might want to consider transferring your balance to another credit card account at 0% APR. 

There is usually a balance transfer fee of 2-3%, but in exchange for a 0% rate for 12-24 months, that's quite a good deal.

You can use the 12-24 months as a reprieve to keep paying down the amount you owe on your credit card. When you run out of time, you can get another balance transfer.

It is important to note that you should be using the balance transfers to PAY DOWN debt, rather than continue adding to your debt! 

Some good cards that will help you optimize for 0% balance transfers (FICO Score: 700+) are:


Cashback cards are great cards to pair with balance transfer cards because they earn you money that you could put towards reducing those balance transfer amounts.

There are generally two ways to earn cash from credit cards. They are:

  • get cash bonuses for opening an account. Typically, if you put a certain amount of money on a card within 3 months of being approved for it, you stand to earn a modest amount of money as a bonus.
    • Depending on the card issuer, this may be in the form of actual cash, or a statement credit which you use like an "eraser" to reduce the amount you owe.
    • Before you apply for a cashback card, map out if you are going to meet the minimum spend required to earn the bonus.
    • It is important that you are using the card for your actual living expenses - that is, money that you have to spend anyway, like grocery, utilities, cellphones, and any other payments you would have had to pay for anyway. 
    • It would be self-defeating to buy $1,000 of things you really did not need just to earn $300 in bonuses. 
  • Optimizing the category bonuses. Many of these cashback cards have categories where you earn a higher amount for your purchases through the year, such as for groceries, gas, dining, travel, and more.
    • If groceries make up a large part of your monthly budget, pick a card that rewards you for that. 3% cashback is considered pretty good.

Some good cards to help you optimize for cashback (FICO Score: 700+) include:

Travel rewards

A WARNING: If you cut up your credit card or stick it in the freezer because you can’t control your spending, or if you are not able to pay off your credit card statements in full, on time, every time, this is not for you.

But once most of your debts are paid down, and your credit score is in the 750+ range, you might want to consider travel rewards credit cards.

Travel rewards can be a complex topic, and has a free course to help you navigate the ins and outs of this lucrative hobby. If this is something that appeals to you, check out the travel rewards course.

At the heart of it, they are similar to cashback cards except they can bring you much more value if you enjoy traveling (after the pandemic is over!).

For instance, while you may only earn $300 in bonus money with a cashback card, a travel rewards card may fetch you 30,000 points or miles that can be traded in for travel worth $400 or more.

One of our favorite travel rewards cards is the Chase Sapphire Preferred Card. There is a more complete article on this great card here, but in a nutshell, this card is one that brings you flexibility in how you use your points, without sacrificing any value.

If you are approved for this card and meet the requirements needed to earn the bonus points, you could potentially trade those points in for cash, or, get even more value by redeeming travel rewards in one of two ways:

  • get an instant 25% more value when you book a flight or hotel reservation on the Chase travel portal. So if you have points that are worth $600 in cash, those same points would be worth $750.
  • get even more value by transferring those points to one of Chase's travel partners, such as Southwest Airlines or the Hyatt hotel chain. Depending on the your travel plans, a $600 value in cashback may be worth as much as $900 or more.   

If you would like to travel the world for free (FICO Score: 750+), consider the following cards:  

And, be sure to sign up for the free travel rewards course.

So there you have it.

With the right know-how and some discipline, you can tame credit cards and use them as a tool to improve your financial well-being, rather than let it be something that makes you anxious.

And remember, if you would like to learn more about how credit affects your financial life, check out this article on


The ChooseFI International Foundation has partnered with CardRatings for our coverage of credit card products. The ChooseFI International Foundation and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.
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