5 Best Practices for Using a Credit Card

A credit card can be a useful tool in building up your credit and often used for accessing many everyday services – from booking vacations to renting a car. Credit cards can also lead to too much debt and cost you more money in the long run, if you don’t use them the right way.

Here are Five Best Practices for using a credit card:

1. Pay your balance to $0 each month, if possible. You can use your credit card every month to successfully build up credit. Carrying a balance month to month means you have to make an interest payment, causing you to pay more than what you originally spent. For this reason, each month, you should calculate how much you’ll be able to pay toward your credit card bill, and only charge that amount to your card. Now, of course there will be times when making the monthly payment in full will be difficult or impossible. If you’re going through a period of unemployment or general financial hardship, you may have to put more on your credit card than you can afford to pay back. 

2. Keep your credit utilization (percentage of outstanding credit balance to your credit limit) below 30%.  Credit utilization is a key component of your credit score. This may take some extra math, but you should keep tabs on your balance each month and strive to keep it below 30% of your credit limit. For example, if you have a $1,000 credit limit, you should try to keep your balance below $300. Using 30% or less of your credit limit is favorable to the credit bureaus. Consider this the sweet spot for maximizing rewards and credit-building while avoiding high utilization.

3. Review your statement each month for accuracy and spending awareness. Always review your monthly credit card statement (or check your balance online) for accuracy and to ensure you’re only paying for charges you made. Don’t hesitate to call your credit card provider to discuss unidentifiable transactions. Fraud continues to be a major problem, and if you don’t check your account or you’re used to having high balances, fraudulent purchases can be missed. Look out for monthly charges and expenses that were forgotten and are no longer needed. Subscriptions to streaming services, gym memberships, magazines, newspapers and websites are all common examples of these expenses.

4. Keep an eye out for promotional periods to capitalize on your rewards. Some credit cards have promotional periods in which you’re offered a 0% interest rate or enhanced rewards incentives during a specific period of time. This often happens when you first get a card but you may receive additional promotional offers in the future, as well. Make sure you’re aware of these promotions, as these are ideal times for including purchases you’d normally make another way. Taking advantage of a promotional period is a strategic way to capitalize on rewards or avoid making interest payments. But you should also be keenly aware of when the promo period ends so that you can have your entire balance paid off at that point. Otherwise, you may be looking at a hefty increase in interest paid over time.

5. Stay up-to-date on your credit score. A credit card can help you build a healthy credit score, so make sure you know where you stand. You can also request your credit report from each of the three credit bureaus annually. A credit card is a beneficial financial tool if used responsibly by incorporating these tips. Source