Credit cards are powerful financial tools. Used responsibly, they can offer you valuable rewards and benefits and, of course, a secure and convenient method of payment.
But what does “use responsibly” actually mean? Here are our top tips on how to avoid making mistakes with your credit cards.
Pay your bills on time and in full
The most important aspect of using a credit card responsibly is making your payments on time. In fact, your payment record is the largest factor in your credit score, and making on-time payments is crucial to building and maintaining excellent credit.
For your payments to be considered on time, they must be received by the due date and cover at least the minimum payment amount specified on the statement. If your payment is less than the statement’s minimum payment or is received after the due date, it will be considered late.
Late payments can be subject to late fees and higher interest rates as a penalty. And, of course, a late payment can be reported to the consumer credit bureaus, which will damage your credit history and lower your credit score.
However, there is a simple way to ensure that your payments are received on time. Several credit card issuers offer the option of autopay, letting you automatically pay your minimum balance, your statement balance or any other amount you choose. The funds are withdrawn from your bank account, and you can generally avoid late payment as long as the necessary funds are available.
At TPG, we also recommend you pay your credit card bill in full whenever possible. If you’re incurring interest charges, the cash back, points or miles you’re earning may be negated by the fee you’re paying to roll a balance over month to month.
Related: How to check your credit score for free
Avoid excessive debt
After your payment history, the total of the amounts you owe is the next largest factor in your credit history. Many credit experts agree that you should keep your level of debt below 30% of your available credit. However, there’s nothing magical about the 30% figure, and it’s always better to have less debt than more.
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Furthermore, those who use credit cards to earn rewards should avoid carrying a balance and incurring interest charges. That’s because rewards credit cards will generally have higher standard interest rates than similar cards that don’t offer rewards.
If you’re unable to consistently avoid interest charges by paying your entire statement balance each month, you should consider using a non-rewards credit card with a lower interest rate. Once you’ve paid off your outstanding balances and are in the habit of avoiding interest charges, then you can consider using a card that offers rewards for your spending.
Related: How to avoid and reduce credit card interest
Don’t overspend
It’s incredibly easy to make purchases with your credit card, which can be both a strength and a weakness. It’s nice to have a convenient way to pay for things, but it can lead some people to overspend.
Using your credit card responsibly means making purchases you would have made anyway, regardless of what form of payment you had at your disposal.
If you find yourself spending more money with a credit card than you would have if you had used cash, checks or other forms of payment, then you aren’t using your card responsibly.
Related: Things people misunderstand about traveling on a budget
Keep track of your charges
Every month, your credit card issuer will issue you a statement that includes all the charges you made during that statement period. It’s your responsibility to go through all those charges to look for errors. A merchant could have charged you incorrectly, or someone could have made a fraudulent charge on your card.
Fortunately, the law provides some protection for you against fraudulent charges. However, it’s often up to you to spot these charges and notify the card issuer.
Related: Credit card fraud vs. identity theft: How to know the difference
Keep your credit cards secure
Part of being a responsible credit card user means doing your part to fight credit card fraud. This starts with simple measures like not leaving your credit cards in a wallet or purse that you leave in your car and always keeping your cards secure at your house and at work. You should also avoid having your credit card numbers appear in any photos that you’ll be posting to social media.
Never loan your credit cards to others or share your account information, even with friends or family members. But if you want to extend your purchasing power to a family member or an employee, you can request additional cards for authorized users, usually at no added cost.
Related: Credit card fraud: How to spot and report it
Bottom line
Like so many other powerful tools, your credit cards must be used responsibly. Failing to do so can hurt your credit and damage your finances. When you follow these simple rules for responsible credit card use, there’s no limit to how far their rewards and benefits can take you.
