Credit cards are valuable financial tools – if used responsibly. When payments are made on time and in full, the benefits of having a credit card are endless. From boosting your credit score to earning rewards on purchases, there are plenty of financial advantages that come with credit cards. To ensure you’re using yours as wisely as possible, check out the top 5 credit card tips for responsible users.
Pay Off Your Credit Card Monthly
The first step to being a responsible credit card user is to pay off our card monthly. Paying the balance in full each billing cycle is the only way to avoid paying interest (and interest rates on credit cards can be high). To ensure you can afford to pay off your balance on time and in full, never spend more than you can pay for.
Do Not Skip Payments
Make sure you pay your credit card bill every single month. If all you can manage is the minimum payment, make sure to at least pay that amount. When you miss a payment altogether, you may incur a late fee and even penalty interest rates (that are even higher than regular interest rates). Perhaps even worse, skipping a payment could affect your credit score. As we all know, a good credit score is crucial to obtaining loans or even being able to rent an apartment.
Use Your Credit Card For Needs
Credit cards should be used carefully. Since they are effective loans, it can be tempting to spend more than you can afford. But frivolous spending can quickly lead to debt. That is why we recommend keeping your credit card purchases to a minimum. Credit cards can be used in emergencies or for monthly bills, such as your phone bill. But when it comes to day-to-day purchases, it might be wiser to use a debit card and avoid the risk of overspending.
Don’t Go Above 30% Of Your Credit Limit
Avoid overspending while maintaining a healthy credit score by staying below 30% of your total credit limit. When your credit utilization ratio is beneath 30%, this is a green flag to creditors that will help boost your credit score. Expressed as a percentage, the credit utilization ratio shows you how much of your total available credit you’re currently using. Therefore, if you have multiple credit cards, this ratio pertains to the sum of all cards, meaning the total usage between all cards should remain at 30% or below.
Open A Rewards Card
Reap the rewards – literally – of a rewards credit card. There are many types of credit cards out there, but rewards credit cards offer some of the best advantages. Not only can you avoid paying interest, but you can also earn rewards points that you can redeem for flight tickets, retail items, or even cash. Keep in mind that when you have a rewards credit card, it might incentivize you to use your credit card for the majority of purchases. Only do this if you are certain you can pay off your credit card bill by the end of the month. If there is any doubt in your mind as to whether you will be able to pay off your entire credit card bill, it’s safer to purchase the item with cash or debit.