Even if you are not a regular user of credit cards, perhaps you would consider applying for a card when you are about to purchase a big ticket item such as a television, appliance, or furniture set. And why not? With a credit card, you can pay the purchase off over time, but not have to worry about an official loan. Also, since you don’t have to rely on cash, your checking account won’t suffer because of the major purchase. You can simply spread your payments out over time and keep your month to month budget intact.
Of course, whenever you make a large purchase using a credit card, there are lots of issues to consider. Can you pay off the balance in a timely manner? Will interest payments make the purchase more expensive in the long run? Will the purchase affect your credit score, and will you have a high enough credit limit to use your card in case of emergency while you are in the process of paying off your major purchase?
First, you have to consider the obvious: what is the interest rate on your card? If you are making a major purchase, it might even be worthwhile to apply for a new card. If you have a good credit score, you can get a card with a 0% introductory interest rate or a low fixed rate. This makes it possible to pay down your balance, at least part of the way, without having to be overly concerned about interest rates adding too much to the cost of your purchase. The catch is that some cards’ rates spike to more than 20% after the initial 0% period is over. You’ll have to be aware of this so that you don’t get hit with interest payments on your remaining balance.
Purchase protection is another thing to consider. Some cards have it, and some don’t. If you are making a major purchase, a card with purchase protection can help you avoid paying for any extended warranties and can also add an extra layer of protection should something not work correctly or should you want to return the item to the store.
If you have a single credit card and the big-ticket purchase eats up most of your credit limit, you might want to consider applying for another card. Having a balance that is close to your credit limit can hurt your credit score, but opening a second credit card account will give you some room because your overall credit limit (the combined limit of the two cards) will be much higher than the balance caused by the one big purchase. Also, two cards will mean that you will still have a usable credit card on hand to use in case of emergency. Another option would be to put the big ticket purchase on two cards (or to pay cash for part of it and credit for the rest). This splits the balance up and gives you more room between your balances and overall credit limit.
If you are looking for rewards points, make sure to do your homework. Figure the rewards points into the overall cost. This is important, especially if you are using a store credit card. Store credit cards (from Best Buy, Sears, etc) generally have high interest rates. So, although you may be saving 5% or 10% on the purchase, you will be charged 20% APR or more. However, a 0% interest card, like some of the cards offered by Chase or Discover, can give you significant cash-back perks without exposing you to interest payments. As long as you are sure that you can make payments to eliminate the balance before interest payments kick in, a cash-back card can actually be better than a store credit card in the long run.