Blog Post

Why use a credit card?

Credit cards are fantastic tools that can increase your buying power and provide special benefits.

If used well, credit cards:

• Help build and establish credit
• Often give rewards and benefits for purchases
• Provide ready to borrow funds when unexpected expenses arise
• Take stress off your budget by spreading out expenses

What is a credit limit?

A credit limit is the total amount you can borrow using the card. You can spend up to that limit if you so choose, or you can spend less than the limit. The key is paying it off when the bill comes due. Tracking your spending and making sure you have enough money to pay off the balance when it is due will save you from paying interest on what you spend.

At some point, you might have to carry a balance on your card. It is recommended to keep no more than 30% of your credit limit on the card from month to month. A balance higher than 30% of your credit limit, may negatively affect your credit score. A good strategy to improve your credit, if this situation arises, is to pay off the balance of your credit card starting with the highest interest rate first.

What should my limit be?

Credit card limits will vary based on how much you can afford with your current bills and income, and your experience managing credit. If you don’t have any credit, it is a good idea to start with a small limit, usually around $200 to $500. Then, you can increase it as you improve your credit score and establish a history of paying off your credit card on time. Limits typically range from $500 to $10,000, but can be higher.

APR and interest rate.

Interest rates are the cost of borrowing and are usually communicated in an Annual Percentage Rate or APR. Interest rates can be as high as 30%APR while an interest rate of 10%APR is on the lower interest rate end. At MembersAlliance, our interest rates can be as low as 8.90%APR! Taking a good look at what the interest rate can be before applying for the credit card will help you avoid higher interest rate cards.

Some credit cards will offer special limited time interest rates that are great to take advantage of especially when transferring a credit card balance from a higher interest rate credit card.

Fees.

With any credit card, there may be fees involved. Make sure to ask about possible fees and read the information provided during the application process. Knowing the credit card fees ahead of time will prepare you for any additional costs.

Some credit cards charge annual fees, usually for special rewards cards or for those with a lower credit score. Other fees may be due to the transaction type. For example, when you use your credit card at an ATM to borrow in cash, it is called a cash advance. Many credit cards will charge $3 to 5% of what you take out with a cash advance or balance transfer. At MembersAlliance, we do not charge fees for cash advances, balance transfers, or have annual fees with our credit cards.

Lenders can only charge up to $30 for the first late payment, whereas we only charge $25 for late payments and do not increase the fee for additional late payments. However, we’d rather not charge fees at all. Our goal is to help you on your financial journey, so if you ever have trouble keeping up with your credit card payments, we are here to help. Contact our Financial Care team to get one on one assistance.

Rewards and benefits that come with cards.

Some credit cards will let you earn reward points for specific types of purchases, while other rewards cards will let you earn points for every purchase. Keep in mind, if you carry a balance on your credit card, the rewards may not be worth the cost of the interest and fees of the card.

Some benefits can be really creative from gift cards, to event tickets, to electronics. Our MembersAlliance VISA Platinum Rewards Credit Card even has a unique feature to use points towards lowering your interest rate on your next MembersAlliance loan.

Credit card alternatives.

If you would like to improve your credit, or you have never used credit before, there are safe and fee free alternatives to credit cards that build your credit. One option is a Credit Build Loan. A Credit Build Loan is designed specifically for the purpose of building credit by creating a loan that requires regular payments and deposits the money into the account after all the payments are made. This way if something were to happen, and you can no longer pay on the loan, the loan will close and no damage is done to your credit. But if all goes well, you’ll have had a loan record with on-time payments helping build your credit history and score, all while saving a little extra money!