Little-known trick to get more out of your credit card

Posted at 08/03/14 8:56 AM

MANILA, Philippines - Credit cards can be your downfall, but it can also be a fantastic financial tool. But it depends on you if you maximize the card's use.

ANC On The Money's resident financial adviser Salve Duplito said if you know how to use your credit card, you can make money out of them.

She revealed a little-known trick: taking advantage of your credit card's billing cycle.

However, she warned this trick is not for those who are having budget problems.

"If you know how to use this trick, you can use your credit card to buy something today, enjoy it or make money off it for 40-45 days, and not have to pay for anything in cash," Duplito said.

She noted that every credit card company gives you about a month to use your card before it starts billing you for your purchases.

"The credit card company gives you around 20 days to pay for it, after the billing cycle ends to pay for the purchases within the cycle. If you swipe on July 1, that's 44 days of virtually free cash," she said.

The key is whether you can keep the end of your billing cycle in mind.

"If you make your purchases just after the cycle ends, you lengthen the 'free float' and take the advantage of free money from your credit card," she said.

The timing of the transaction would matter a lot.

Duplito said if you can delay your purchases to make it on the first few days of your billing cycle, then you are really taking advantage of this financial tool.

"Unfortunately since most people don't pay close attention to the fine print, very few know how to take advantage of this feature inherent in all credit cards," she said.

This trick would work only if you don't run a balance on your credit cards, and if you pay your credit card bill on the due date.

"The moment you become a 'revolver' (in bank speak, this means you're someone who doesn't pay your credit card bill in full) or a 'borrower,' the 'free float' disappears," Duplito said.

Another thing to keep in mind is if you fail to pay your credit card bill in full, the credit card company will start charging you interest on the first day of your billing cycle.

"Assuming you failed to pay in full, if you bought an item on the first day of your billing cycle, the credit card company will start charging you interest on the day you make the purchase, not during your payment due date, not during the end of your billing cycle. Interest starts ticking like a taxi cab meter," she said.

For those who are having budget problems, Duplito noted one of the reasons why you are paying too much interest is that your credit card payment is due when your salary is almost depleted, like the 17th or 27th.

Duplito suggested calling the card company to adjust your due date, so it falls right before you get your salary.

However, she warned this is just a stop-gap measure. "Nothing beats swiping only when you have the cash to pay for an item. Always remember, credit cards can be your best friend but only if you know how to use it wisely," she said.

The government will soon have a way to aggregate all credit behavior into a single database that all financial institutions can access.

"All your good behavior, as well as mistakes, will be visible to all lenders. Your credit score can either cause you to have better and cheaper access to credit. But it can also cause a nightmare if you credit record is not clean," Duplito said.