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Credit cards often have a bad reputation, associated with overspending and debt. But many people, including the wealthy, see credit cards as a powerful tool to build wealth. And it’s not just because rich people can afford to pay off their monthly balance.
Most wealthy people don’t see credit cards as a way to splurge on luxuries or accumulate debt. Instead, rich people use credit cards to their financial advantage.
Let’s explore the six credit card habits rich people use to maximize their money.
1. They use their credit card for most purchases
What are the spending habits of the rich?
It turns out many wealthy people use plastic for most of their purchases. A recent survey found 49% of Americans with a net worth over $1 million have a travel rewards credit card, compared to 23% of Americans with a net worth below $1 million.
Using a rewards card allows them to take advantage of cashback, rewards, and airline miles. According to Mike Boroughs, financial advisor and managing partner of Fortis Financial Group, rich people know every transaction they make with their card is a chance to earn valuable perks.
“If you pay your card off every month, you don’t pay interest, you are getting points for free [that] you can use for luxury travel,” he says.
Credit cards are safe and convenient, allowing individuals to make big purchases without worrying about carrying cash, says Robert Farrington, financial expert and founder of The College Investor. Credit cards include added security measures and fraud protection, offering more peace of mind.
Using a credit card for all your spending helps rich people track their expenses more efficiently.
“Especially as you have a lot of transactions, you can streamline everything to one or two accounts and make a single payment to pay off the cards,” says Farrington.
2. They have multiple credit cards
By using different cards for different purposes, rich people can take advantage of multiple rewards programs and get the most out of their spending.
The same survey found 70% percent of Americans with a net worth over $1 million have two or more credit cards, compared to 41% of Americans with a net worth under $1 million.
Wealthy individuals who frequently travel may use different credit cards to avoid foreign transaction fees or earn rewards at hotel chains or airlines. Some cards come with added travel benefits like airport lounge access, concierge services, or travel insurance.
Having multiple credit cards can also provide an higher overall credit limit, which can be helpful when making large purchases or managing a high cash flow. By spreading their expenses across different cards, wealthy individuals can also maintain an overall lower credit utilization ratio.
3. They pay off their balances in full each month
The financially successful make it a priority to pay their credit card balance in full every month. Boroughs says this avoids costly interest charges and can help build a higher credit score. It also ensures they’re using a credit card as a tool for convenience and rewards rather than for accumulating debt.
Rich people can maintain control over their finances by avoiding credit card debt, among other tactics. They can allocate their resources more effectively towards wealth-building endeavors — like earning rewards.
“When you pay off the card in full each month, you don’t pay interest,” Farrington says. “So you get all the benefits of the card, but you’re not paying more for the purchases.”
4. They maintain a low credit utilization ratio
Wealthy individuals understand the importance of maintaining a low credit utilization ratio. This ratio represents the amount of credit you use compared to your credit limit. It demonstrates your ability to manage credit responsibly. Most experts recommend keeping this ratio below 30%.
By keeping a low credit utilization ratio, wealthy individuals show lenders they’re not relying too heavily on borrowed funds. Keeping a low ratio allows them to access better financing options and secure favorable interest rates.
Maintaining a low credit utilization ratio also can provide a financial safety net. By using only a little of their available credit, wealthy individuals have more wiggle room in case of an emergency or unexpected expense. This ensures they have access to credit if needed.
5. They avoid fees & unnecessary charges
Wealthy people will ensure they’re avoiding charges like late fees or foreign transaction fees as much as possible. This allows them to keep more of their hard-earned money and allocate it toward other things.
Rich individuals will also seek credit card options with favorable terms and conditions. They review the credit card agreement to understand each card’s fee structure and potential charges.
This helps them choose credit cards with minimal fees and charges, minimizing the potential impact on their wealth.
That doesn’t mean wealthy people avoid all fees. Farrington says that many rich people will select premium credit cards with high annual fees — but for them, the potential value in rewards and perks outweighs the yearly cost.
Boroughs points to the Platinum Card® from American Express as an example of a premium card with a high annual fee with perks like global airport lounge access, annual airline credits, and a lucrative points-earning structure with flexible redemption options. For some, that high annual cost is worth the luxury benefits.
“So, if you plan to use these types of cards, make sure you’re getting value on par with the fee you’re paying,” said Farrington. “If you’re not using the perks and benefits, it’s not worth it.”
6. They use their card as a tool to build credit
Most rich people view their credit cards as a key way to build and improve their credit. Good credit card habits, like paying your bill in full each month and keeping your balances low, can boost your score over time.
Boroughs says that a higher credit score means access to higher lines of credit and more favorable terms on things like investments or real estate ventures.
By using your cards as a tool to build credit, you can build wealth and reach your financial goals.
The bottom line
Here’s the good news: You don’t have to be wealthy to follow these credit card habits. These habits are beneficial for anyone looking to improve their financial well-being.
For example, by using a rewards credit card for everyday purchases, you can take advantage of the card’s perks and maximize the value of your spending. This can benefit anyone looking to make the most of their money and save on regular expenses.
These card habits can improve your financial stability, offering peace of mind. Being proactive and responsible with your credit cards will help you maintain control over your financial situation and reduce stress.
Ultimately, you can use credit cards to your advantage. Rich people have been doing it for a long time, and now’s a great time to join them.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.
