Manage Your Credit Cards Responsibly

Are you new to credit? Have you been trying to work on your credit for years with little success? The concept of credit is not always easy to master, especially when there is so much information (and misinformation) out there about how it all works. Whether you’re new to credit cards or have been using them for a while, it’s always a good idea to make sure you follow good credit hygiene to get the most out of your credit. It’s easy to fall into the habit of charging everything to your credit card without thinking or pick the card with the shiniest rewards package, but that can have unintended consequences that can prevent you from improving your credit score in the long run. Remember these tips the next time you want to use your credit card or sign up for a new one.

Learn How to Use Your Credit Card Effectively

A credit card can essentially be viewed as a short-term loan from a credit card issuer. They will let you borrow money, up to a certain limit, however you must pay back the full amount within a set period of time or be charged interest on the remaining balance. Credit cards typically have higher annual percentage rates versus other types of consumer loans, which makes an impact on how you choose to use your card. A credit card can also build your credit, which helps you down the road with getting lower interest rates, lower car insurance premiums, and apartment/house hunting if you have a good credit score.

When you are signing up for a credit card, it’s important to weigh all your options, taking into account what you will want to use the card for, your financial goals, and your current financial situation. If you’re new to credit cards or are a student, a secured credit card may be the best option for you. If you’re a longtime credit card user, you may be more interested in the rewards you can get from different cards. It’s important to do your research before signing up.

Understand the Terms and Conditions

Every card will have its own terms and conditions, and it’s important that you familiarize yourself with the fine print of each to make sure you understand what you can do with your card. Some common terminology you may see includes:

  • Purchase APR: Interest rate you’ll pay on purchases for any remaining balances you don’t pay off before the grace period ends.
  • Penalty APR: higher than normal purchase APR, often triggered by missing a credit card payment. This can apply to future purchases or existing balances on your credit card, and it could also wipe out any promotional APR you may have previously been eligible for.
  • Grace Period: Time between the end of the card’s billing cycle and the payment due date.
  • Annual Fee: Some cards may charge an annual fee but offer other rewards and perks. Make sure the perks outweigh any fees.
  • Late Fees: Card issuers can charge late fees if your payment is even one day late.
  • Returned Payment Fees: If you do not have sufficient funds in your account to pay your bill, you may have to pay an additional fee.
  • Foreign Transaction Fees: Purchases outside the U.S. or in other currency may trigger a foreign transaction fee.

Always Make Payments On Time

Starting your credit journey with late payments is a slippery slope to a bad credit relationship. Don’t let yourself get caught up in the convenience of paying with a credit card without knowing your budget and credit limits. Payment history makes up 35% of your credit score, so it’s incredibly important that you stay in good standing so that your credit score continues to build and work for you, instead of against you.

Pay More Than The Minimum Amount

Besides making payments on time, it’s also important to make sure you try to pay more than the minimum amount each month. Minimum payments help you avoid penalties and fees, keeping your account in good standing. However, like with other loans, only paying the minimum means you’re still carrying a balance. Interest will be charged on that balance, making it harder for you to pay it off in the future. This can lead to credit card debt if you’re not careful. If you’re able to, try to pay more than the minimum each month to keep your balance as low as possible.

Only Spend What You Can Afford

Credit card issuers will give you a credit limit, but it’s important to not spend all the way up to your limit, especially if you want to build a good credit score. Often, credit scores are measured by the credit utilization ratio, which shows how much available credit you’re using. The lower your ratio, the better your credit score can be. Experts recommend most people use 30% or less of their credit limit.

If you’re also trying to stay within a budget, it’s important that you watch your credit card usage. A credit card is not “free” money, and you will eventually have to pay back all that you have spent. It’s important to set goals for yourself in relation to your credit cards and only use them in ways that will benefit you in the long run.

Understand How Credit Scores Work

Credit scores and credit cards go hand in hand. It’s important to learn how your credit cards can work for or against you when it comes to your overall score. As we’ve already shown, payment history and credit utilization are big parts of your credit score, but creditors also take into account what credit types you have, the length of your credit history, and number of recent credit card applications to get an accurate picture of your profile as a borrower. Don’t make rash credit decisions because of a really good rewards program or deal that “won’t last long”. It’s always important to do your research. To learn more about credit scores, click here.

Check Your Monthly Statements

As a financially responsible individual, it’s always important to keep an eye on your statements. Not only does it help you stay on track with your financial decisions, but it can also help you pick out any fraudulent transactions.

Report a Lost or Stolen Card Immediately

You should always treat your credit card like you would cash, debit cards, or checks. You want to keep a close eye on it and make sure it isn’t lost or stolen. If it is, make sure you report it immediately. Not only does this help protect you from any potential fraud, but it will also help make sure you aren’t held responsible for purchases you didn’t make. Depending on your credit card issuer, you may even be able to lock your card from your phone until you find your card again or get a new one. Stolen cards can wreak havoc on your credit score and potentially lead to identity theft, so make sure you’re doing everything you can to protect your personal information.

Think Before You Act

Credit cards can be a very useful tool to help you build your credit and purchase things you need. However, when used incorrectly, credit cards can also ruin your financial goals. Don’t become a victim to credit card debt or fraud. Don’t be taken in by shiny advertisements or promises for great rewards. Stay vigilant, always do your research, and shop around before picking a credit card. Once you’ve chosen one you like, make sure you’re making smart decisions about your spending. Need help getting your finances in order or have more questions about how credit cards work? Talk to one of our experienced bankers today: Locations - Availa Bank.