Long-term planning with a credit card

Credit cards are a helpful tool to have in your back pocket for both the day to day and the long term. You can set financial goals and choose which cards will help you reach them. Plus, card benefits, rewards and sign-up bonuses can play a big role in moving ahead with your plans.

Learn more about long-term planning with a credit card and which types of cards might be the best fit for your needs.

How can credit cards be part of long-term financial planning?

You probably use your credit card daily in a number of ways.

Maybe you swipe your card for a morning coffee or make an online payment for lunch delivery. You might swing by a gas station or grocery store and charge that fuel or food to your card. In the evening, maybe you book that flight to visit your friend or family member using your card or points.

“Credit cards are useful everyday financial tools when used properly,” says Matthew Goldman, Founder and President of Totavi, a financial technology consulting firm, and former Chief Product Officer at Bankrate.

But credit cards can take you further than everyday spending. Here are ways to think ahead with your credit card usage:

Choose long-term financial goals

Before you start on a journey, it helps to know where you’re headed. Start by identifying your financial goals and ordering them by priority. Then, you can choose the right cards and decide how to use them.

Here are a few long-term goals that you can reach by using credit:

• Building an excellent credit score: Having a high credit score can help you qualify for better terms and lower interest rates on things like mortgages, car loans and personal loans.
• Funding a big vacation: You can lean on travel rewards to pay for things like flights, hotels and rental cars.
• Paying medical bills: If unexpected medical bills arise, having a credit card with a generous credit limit can help you avoid being strapped for cash or dipping into your savings.
• Repaying credit card debt: It might sound counterintuitive, but if you have hefty credit card debt from your younger years, you can use a balance transfer card to pay it off quickly and affordably.
• Cover a large purchase: Credit cards with a 0 percent introductory APR offer can buy you time to make a big expense and pay it off before it starts accruing interest.
• Saving for retirement: Some credit cards offer rewards in the form of a contribution to your retirement savings account.

Search for cards that fit your goals

After considering your long-term plans, you can look for credit cards with benefits and rewards that align your goals.

For instance, if you’re trying to build credit with a credit card, you can do so by making on-time payments and keeping your credit utilization low. As the age of your credit — and hopefully your credit limit — grows over time, that will also boost your credit score. But if you have no credit or poor credit, you’ll need to start with a card you can qualify for.

“Building credit is a long-term path,” Goldman says. “I recommend you get an initial card, charge something like Netflix or Hulu to your card, and set up auto-pay. Make sure it’s something small you know you can pay off.” This tactic lets you create a positive, consistent payment history with low risk.

Rewards cards are a great way to gain value on purchases you’d make anyway. When thinking about your financial goals, consider what type of rewards card, such as a travel card or cash back card, could help you reach them.

Travel cards let you earn miles or points on both everyday and travel-related expenses that can help pay for your next trip — but they can be a little complicated to use. On the other hand, cash back cards offer straightforward rewards on purchase categories like entertainment, dining and shopping — but you might not get as much value out of them as you would a miles-earning card. You can, however, redeem cash back in ways that could work for your goals, like a big purchase or a deposit to your savings.

Some credit cards are even co-branded with investment companies that can funnel your cash back rewards into a retirement savings account.

And don’t forget about credit card perks. “Consumers benefit from protection features, like zero-dollar liability, merchant dispute rights, and features such as extended warranties or return periods on many cards,” Goldman says.

“Cards provide a flexible way to access cash, earn rich rewards, and, when used properly, help build a strong credit profile, leading to lower rates for other loans.”

— Matthew GoldmanCEO, Totavi, LLC

Use sign-up bonuses to boost your progress

Looking for cards with sign-up bonuses can help get you further down the road to your rewards goal.

To motivate you to apply for a card, some card issuers offer a sign-up bonus — or welcome offer — for spending a certain amount on a credit card within a timeframe. This bonus might add hundreds of dollars in value to your rewards.

For example, the Capital One Venture Rewards Credit Card offers new cardholders a bonus of 75,000 miles for spending $4,000 on purchases within three months from account opening. Those miles are equal to $750 in travel. Assuming you can spend that amount of money without exceeding your budget, this is a great way to help you pay for that bucket list trip.

Remember that your credit health impacts your future

Keep in mind that the way you use your credit will impact your financial health more than the rewards you choose or the purchases you make.

Responsible credit use can eventually get you to that coveted 800 credit score. Factors like a positive payment history, low credit utilization, lengthy credit age and a diverse credit mix all play a role in your score. And having excellent credit can lead to milestones like mortgages and the most desirable credit cards.

But on the flip side, misusing your credit can have a detrimental effect on your financial future. “Just as a card can help your score, it can hurt your score if you don’t pay at least the minimum on time every single month,” Goldman warns.

“I also caution consumers to be aware of when to open a card: don’t do so right before another loan like a car or home purchase,” he says. That’s because the hard inquiry that comes with the card application can temporarily drop your credit score, which may affect your loan terms.

The bottom line

Credit cards are powerful financial tools that can be used for both short-term and long-term financial planning. Whether you want to build excellent credit and unlock better loan terms or pay for your next summer vacation, a credit card can help you get there.

Just remember that how you use your credit card is key — and can positively or negatively impact your financial future.