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How to Use Credit Cards Responsibly

Credit cards offer a convenient way to build up a strong payment record and give a boost to your credit score. In turn, a good credit score can snag you better interest rates when you apply for a car or home loan. But it’s crucial that you use your credit cards responsibly so they work in your favor.

How to Use Credit Cards Responsibly

So you’ve snagged your first credit card and you need to know how to use it responsibly. Maybe you’re already on your second credit card, but you still need help. Using your credit card responsibly should be quite simply. It’s essentially spending only what you can actually afford. Then when your bill comes, you can afford to pay it in full and on time. By doing that, you avoid carrying over a balance and accruing interest. This system is “the golden rule” of credit cards, according to Jason Steele, a journalist who specializes in credit cards.

This is because when you pay only some of the balance, you allow it to accrue interest. If you continue that bad habit, you end up owing more than what you originally paid. That’s how people find themselves in a ton of credit card debt. If you can, try setting up automatic payments or payment reminders. That way you’ll never miss a payment.

Of course, sometimes paying every credit card bill in full and on time isn’t realistic. In that case, you still shouldn’t go overboard with your credit card spending. When you have a leftover balance, it can help to make a plan and a budget for paying it off. The sooner you pay it off, the less you end up paying in interest over the long term. Sometimes this requires sacrificing other expenses like dining out. Avoiding debt issues should be your priority.

If something should happen and you can’t make a credit card payment as agreed, there are some steps you can take. While not ideal, you can make the card’s minimum payment by the due date to avoid a late fee and penalty APR. If you can, trying paying more than the minimum so you lessen the interest charges. You can also try reaching out to the credit card issuer in advance to explain your inability to pay, whether you fell ill or lost your job. Nothing is guaranteed, but you may be able to work out a new payment arrangement with them. In some cases, they can simply extend your due date a few days if you just need a little extra time to bounce back.

Getting Started With Credit Cards

How to Use Credit Cards Responsibly

If you’re new to credit, you can start building your credit with a secured credit card. These credit cards require a security deposit to hold as collateral and determine your credit line. Your credit line, or credit limit, usually starts off pretty low to get you used to spending on credit. Then as time goes on, you’ll hopefully have built good credit and credit habits to either raise your credit limit or get an unsecured credit card. It’s important to find a secured card issuer who will report your usage to the three major credit bureaus, Equifax, Experian and TransUnion.

For credit-building purposes, you should only use up to 30% of your credit limit. This shows lenders you’re not too credit happy. So go easy on the spending, especially with secured cards. You can use them for small, routine bills that you pay each month. That helps both your credit limit and your payment history.

Your credit payment history accounts for 35% of a FICO score. More than 90% of the top lenders in the country look at your FICO score when you apply for a loan. That makes it incredibly important to make payments on time.

Steele says that you don’t necessarily need to start with a secured credit card. They simply offer more security and discipline.

“You’re a blank slate if you don’t have any negative information” on your credit report, he says.

So instead, you can apply for a student credit card if you’re a student or a store credit card. These cards usually don’t offer rewards or competitive interest rates, but neither do secured credit cards. Rather, you can avoid an annual fee with these credit cards.

You shouldn’t rule out credit cards for those with fair or good credit, either. Again, if you don’t have any negative credit information, lenders don’t have reason to believe you’ll be a horrible credit card owner. Just remember to pay your bills on time and, if you can, in full to keep it that way.

Maintaining Good Credit Card Habits

Once you’ve gotten used to spending on credit, it can be easy to increase your spending, until you realize too late that you’re in debt. To avoid that, it helps to know yourself and your financial habits. If you’re going to forget about your bills, set up automatic payments. Or if you’re prone to overspending, leave your credit card at home.

Sometimes it does make sense to get a second credit card. This can help you earn more cash back rewards or more travel points. In any case, you should only get a second card when you’re absolutely ready. Adding a second card means you have two credit card bills to pay and you may have two annual fees to budget for.

However, if you’re getting a second credit card and you don’t want the first card anymore, you may not want to close the first card account right away. The length of your credit history, including the age of your oldest credit card account, makes up 15% of your FICO score. So with credit card accounts, plan on keeping them open a good long while. You can use them for occasional purchases or for automatic bill pay on recurring bills.

It’s also important to watch out for how many new loans or credit cards you’re opening up. Each application will trigger a hard inquiry into your credit, causing a slight dip in your score. If you’re constantly applying for credit cards, those issuers can see that. That can also harm your chances at a home or car loan if those are in your near future.

Watch out for Fees

Credit card issuers make a lot of their money by charging their customers fees. There’s almost a fee for everything, too. Some cards have annual fees that can reach to hundreds of dollars, other cards have fees for using foreign ATMs and more. It’s important to know what your credit card issuer can charge you for. For example, if you make a balance transfer or cash advance, you’ll typically see a higher interest rate and a fee. The same goes for foreign transactions. To use credit cards responsibly and save yourself some money, you’ll want to be aware of these fees and of your transactions.

Bottom Line

How to Use Credit Cards Responsibly

To use credit cards responsibly does take some discipline and focus on your part. But it’s not that hard, especially when you start off on the right foot and keep up that momentum. Always pay your bills on time to avoid any late fees and a penalty APR. Then if you can, always pay the bill in full. That way you don’t carry over a balance. You’ll make this part easier on yourself if you spend only what you can afford.

Tips on Finding the Right Credit Card

  • Before you get a credit card, especially your first, it’s important to make sure that it fits your lifestyle. Assess your normal expenses. Do you spend more money on groceries or gas? Would it help your savings if you got cash back rewards? Answering these kinds of questions will narrow down your search.
  • You may get swept up in all the rewards that credit cards can offer. While it’s important to weigh those rewards, it’s also crucial to look at the fees and costs of a credit card. Sometimes the cards that earn the most rewards can have an annual fee of a few hundred dollars. If you can afford that and the card makes sense for you, then great! But if not, the fee won’t make the rewards worth it.

Photo credit: ©iStock.com/Kerkez, ©iStock.com/GeorgeRudy, ©iStock.com/Martin Dimitrov

Lucy Lazarony Lucy Lazarony has been writing about personal finance for more than a decade. Lucy's a credit card expert. She is a freelance writer and award-winning journalist living in South Florida. Lucy earned a bachelor’s degree in journalism from the University of Florida. Her work is featured on Credit.com, CardRatings.com, MoneyRates.com and Art Hive Magazine.
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