Credit cards have many perks that make them worthwhile financial products. They can help you build credit with every on-time payment. Credit card rewards programs can give you cash or points back from purchases you would have made anyway. But credit cards can also be dangerous and result in thousands of dollars of debt if you’re not careful. Knowing how to manage your credit card can keep your balance in a good position and help you reap the rewards of credit card usage.
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15 best ways to manage your credit card
A credit card is a great resource. Managing it well lets you capitalize on the advantages while staying away from common pitfalls. Following these tips can help you use your credit card like a pro.
1. Read the fine print
Most people skip over the fine print. Terms and conditions documents get long, and you have to agree to them if you want to use the card. Some consumers agree to the fine print to get the credit card and then accept any consequences in the future.
The fine print details how much you may have to pay for your credit card, including annual percentage rates (APRs), fees, and penalties. The terms and conditions outline the rewards programs, but if you look closer at the document, you may discover that your points expire within a year if you don’t use them. Some credit card issuers let you accumulate points without any expiration. You don’t want to save up points only for them to expire before you get to use them.
2. Choose your credit card wisely
There’s no shortage of credit card companies. You can probably get a credit card that aligns with your objectives and gets you closer to the next milestone instead of settling for a card that doesn’t fulfill your parameters. You may even get secured credit cards with no annual fees and cashback rewards programs. Yes, some of these exist.
Consumers looking for unsecured cards should consider how they spend their money and which rewards programs they want to use. Know what you want in a credit card and filter your options. You don’t have to open an account with the first credit card issuer you find.
3. Understand the interest rates and fees
Interest and fees highlight the potential consequences of bad money habits. You only pay interest if you fall behind on your balance, and some fees are avoidable.
While some costs, like ATM fees, are unavoidable for people who frequently use those machines, depending on how the fee is charged, you could minimize costs by taking out larger sums of money at the ATM. Larger transactions could reduce the number of total ATM transactions, and you typically get charged for each transaction instead of based on how much you withdraw. Make sure you understand how ATM fees are charged.
4. Keep an eye on your balance
Monitoring your credit balance is the most important element of effective credit card management. Keeping an eye on this number can make you more conscious of every dollar you spend and how much you have to repay before having no debt. If you can use a credit card and wipe out your debt at the end of each month, you can capitalize on advantages and avoid possible downsides.
5. Make timely payments
Even if you can’t wipe away your credit card debt this month, you should still make the minimum payment plus a little extra. Paying more than the minimum gets you out of debt sooner, and on-time payments are critical to help raise your credit score. Late payments can result in fees and could hurt your credit history. Payment history makes up 35% of your credit score, more than any other category. On-time payments can help improve your score and help you qualify for better loans and lower interest rates.
6. Take advantage of cashbacks and rewards
Many credit card issuers use rewards to entice new users and keep existing cardholders loyal. You can get cash or points back on every purchase. Credit card reward programs have different incentives based on spending categories. Your card may offer better rewards for hotel bookings and other traveling costs. Look at the rewards your credit card offers, and take advantage of them to possibly lower costs. You can use a cashback program to trim your credit card debt, so interest doesn’t accumulate as quickly.
7. Set up automatic payments
Setting up automatic payments is like putting your bills on autopilot. It’s actually easy to do. You just link your credit card to your bank account and then the credit card company will automatically take the payment from your bank account when it’s due. Why is this important?
Sometimes life gets busy, and you may forget to make a payment on time. But with automatic payments, you can make sure you never miss a payment again. This is really handy because paying your bills on time shows that you’re responsible with your money, plus it also helps you avoid late fees.
8. Maintain a low credit utilization ratio
Credit utilization might sound fancy, but it’s basically the amount of credit you’re using compared to the total credit you have available. If you have a credit limit of $1,000 and you’ve used up $300, your credit utilization is 30%.
Keeping this percentage low is a good thing because it shows lenders that you’re not overly reliant on credit.
When you have a low credit utilization, it can positively impact your credit score, making you look more financially trustworthy. To do this, you can try not to max out your credit card and keep your balances as low as possible.
9. Monitor your credit score
Your credit score is one of the most important indicators of your financial well-being. Lenders look at this number before approving mortgages, auto loans, personal loans, and other types of financing. Reviewing your credit score helps you see fluctuations and stay on top of them.
If your score goes down a few points, you can look at your credit card activity to see whether you missed a payment. Refocusing your efforts on timely payments and lowering your balance will help you recover from credit score dips.
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10. Avoid high-interest cash advances
Cash advances with high-interest rates might seem tempting, but all too often, the costs outweigh the benefits. When you get a cash advance from your credit card, you usually have to pay extra fees and higher interest rates. Worst of all, interest starts accumulating right away, which means it can quickly become a costly decision. If you need cash, know there may be better and more affordable options.
Recommended: How To Liquidate Credit Cards
11. Stick to a budget
A budget keeps you firm on your expenses. Budgeting creates guardrails that prevent people from spending out of control. Tracking expenses and monitoring credit card statements help you gauge your monthly spending and purchases of unnecessary items. Trimming these items and using your money for other purposes such as investing and debt repayment will help you stay firm with your budget. People tend to overspend when they have fewer reasons to hold onto their money. A meaningful goal such as becoming debt-free or saving for a down payment will strengthen your budget.
12. Refrain from maxing out your credit card
Be careful not to spend the full limit on your credit card. Using all of your available credit is known as maxing out your card. Instead, try to use only a small part of your limit. Imagine if you had a $1,000 limit on your card and you’ve spent $400 — that’s a credit utilization ratio of 40%.
Here’s why this matters: If you use a big chunk of your credit limit, it can have a negative impact on your credit score If you’re always using most of your available credit, lenders might think you’re relying too heavily on borrowed money and could struggle to pay it back. This can make them less likely to approve you for loans or new credit cards.
13. Use a debt repayment strategy
It’s best to avoid debt, and if you have no credit card debt, it’s best to repay the balance in full each month. You can spend less than you make and monitor your expenses. But some people already have credit card debt, and it can feel insurmountable if you’ve been holding onto it for a few years. A debt repayment strategy can put you on the path to a debt-free lifestyle. Here are some strategies to consider:
- Snowball: Pay the smallest debt first after making the minimum payment for everything else. Having fewer debts makes it easier to prioritize them.
- Avalanche: Focus on repaying debt with the highest interest rate. Getting rid of these financial obligations first reduces your monthly interest payments.
- Consolidation: Get a personal loan and use those proceeds to pay off your higher-interest debt. You can also take out a new credit card with an introductory 0% APR and transfer the balance over. You won’t get rid of the debt, but you’ll have a few months or even a year with no interest accumulation.
14. Review your credit card statement
Take the time to go through your credit card statement every month. This is a record of all the transactions you’ve made using your credit card. Check it carefully to ensure that all the charges are accurate and that there are no unfamiliar or unauthorized transactions.
If you spot any errors or questionable charges, contact your credit card company immediately to report them. Reviewing your statement helps you catch any mistakes or fraudulent activities, allowing you to address them before they escalate into bigger issues that could harm your finances.
15. Protect your credit card information
Your credit card information is like a key to your finances, so it’s important to keep it safe and protected. Be cautious about sharing your card number, expiration date, CVV code, and other sensitive details. Only use your credit card on secure and reputable websites.
When making purchases online, ensure that the website has “https://” in the URL and a padlock symbol, indicating a secure connection. Be cautious of unsolicited emails or calls requesting your credit card information — legitimate organizations won’t ask for this over the phone or through email.
Regularly monitor your credit card transactions for any unusual activity. Safeguarding your credit card information helps prevent unauthorized charges and identity theft, which can lead to financial harm and stress.
The balancing act with credit cards
Credit cards are great financial products. You get to establish credit, build up to an excellent credit score, buy things even if you don’t have enough money at the time, and capitalize on rewards programs.
While these advantages are enticing, poor credit card management can make you vulnerable to debt, high-interest payments, and fees. It’s best to maintain smart practices and stay on top of your credit card use while simultaneously managing your spending habits.
FAQ
What are some common credit card fees I should be aware of?
Common credit card fees include annual fees, late payment fees, over-limit fees, and cash advance fees. An annual fee is a yearly charge for using the card, while a late payment fee is applied if you miss a payment deadline. Over-limit fees can happen if you exceed your credit limit, and cash advance fees are associated with getting cash from your card. It’s crucial to read your card’s terms to understand these fees.
What should I do if I can’t make my credit card payments because of financial difficulties?
If you’re facing financial difficulties, contact your credit card company right away. It might offer temporary solutions like a payment plan or reduced interest rates. Avoiding communication can lead to more fees and damage to your credit score. Being proactive shows your willingness to resolve the situation.
How do I dispute a charge on my credit card statement?
To dispute a charge, start by contacting your credit card company. It will guide you through the process. You’ll typically need to provide details about the charge and why you believe it’s incorrect. It will investigate, and if it finds an error, it will remove the charge. It’s important to act promptly to resolve any discrepancies.
