Tips for Using a Credit Card Responsibly
Credit cards aren’t just for shopping.
If used responsibly, they can also help you establish a credit history, build a good credit rating, and make you more attractive to lenders when you need to take a loan.
If used carelessly, it can easily fall into the debt trap, hurt your credit score, and dim your chances of getting reasonable loan offers.
Here are some tips on how to use a credit card responsibly and keep credit card debt to a minimum:
- Read and understand the fine print. Your cardholder agreement contains key information, such as the card provider’s interest rate and applicable fees, including cash advance, late payment, and foreign transaction fees.
- Only use your credit card for purchases you can afford to pay off in full at the end of the month. Period. Falling into the temptation of making more purchases than you can afford in any given month is a fast way to dig into more debt due to compounding interest. In other words, do not bite more than you can chew.
- Avoid skipping payments. Pay your credit card bill on time monthly to avoid late fees and maintain a good credit score. Pay as much over the minimum payment due as possible. If you have difficulty increasing your monthly payments or want to reduce your balance fast, use your card less. Consider setting up automatic payments to ensure that you never miss a payment. Forgetfulness is an awful reason to lose ground financially.
- Keep your credit card balances low to avoid high-interest charges and reduce the risk of falling into debt. You can do this by only using your card for necessary purchases such as internet and cable bills, cell phone bills, and college books.
- Avoid opening too many credit card accounts at once. If you have too many cards in your wallet, you’ll be tempted to use them all and overspend. You should avoid taking on more cards even if you’re receiving attractive offers. Also, your credit card score is affected whenever a hard inquiry is made into your credit report.
- Check your credit card statement regularly to monitor your spending and ensure that there are no fraudulent charges. Credit card fraud is an inherent risk of having a credit card, but your vigilance can mitigate the risk. If you notice suspicious activity on your card, report it immediately to the card issuer.
- Set up real-time alerts. Most credit card companies and lenders allow you to set up 2-factor authentication so that you receive a text or an email every time your card is used. This way, when a vendor double bills your account for one item, you can immediately alert the issuer to the error and dispute the charge.
- Use your credit card rewards program to your advantage. Many people have credit cards to earn travel rewards or cash back on purchases. When managed correctly, credit cards can earn you a good amount just for everyday purchases. But don’t let it tempt you to overspend.
- Be aware of your credit limit and avoid exceeding it, as it can cause additional charges and damage your credit score. It’s easy to splurge on unnecessary things when you have a high credit limit. Your credit utilization ratio, which refers to how much credit you use compared to your overall available credit, shouldn’t exceed 30 percent.
“Using a credit card responsibly can help you build your credit and earn rewards, but it’s important to always stay within your means and be aware of the potential risks,” says Gary Isler, Senior Vice President of Investments at David Lerner Associates. “Being a responsible cardholder could improve your financial future.”
Being a responsible credit card user means you only use your card when needed, don’t overspend, and make timely monthly payments.
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