For the more than 75% of American adults who use them, credit cards can deliver substantial benefits. Among them, the powerful financial tools can offer consumers everyday convenience, added purchasing power, protection against fraud, a chance to build good credit, and rewards such as cash back, miles and points.
But there is, of course, a considerable catch to all the benefits that credit cards can present. To leverage their advantages — while avoiding the debt-related pitfalls they can present — credit cards must be used responsibly. So it’s important for those who carry them to know how to properly use a credit card.
10 smart credit card tips
With that in mind, today’s blog article focuses on how to properly use a credit card wisely. If you’re looking to learn about the smartest ways to use a credit card, consider these 10 tips geared toward reaping all the benefits a credit card can deliver — and avoiding the dangers that can be inherent with revolving credit:
- Know your credit card’s interest rate — Credit card issuers make money by charging interest on the funds that credit card holders borrow. A credit card’s interest rate is typically expressed as a yearly rate. Known as the annual percentage rate (APR), it’s a percentage figure that represents the annual cost that a card holder pays to borrow money, typically including interest and fees but excluding any compounding.
In most cases, there are several ways to find out what your credit card’s APR is. Among them, you can review your credit card statement, check your card’s terms and conditions, visit your card issuer’s website, or call your issuer directly and request the APR information. - Understand what ‘minimum payment’ really means — As the name indicates, a minimum payment is the lowest sum you’re required to pay on your credit card each billing cycle. But it’s typically only a fraction of your full balance. It’s wise to pay off much more than your minimum payment each billing cycle — and to pay off your full balance whenever possible (more on that below). If you pay only the minimum payment (or anything less than the full balance) each billing cycle, you’ll carry debt over to the next billing cycle and will be charged added interest.
- Aim to pay off your full balance each month — The charges you put on your credit card will not accrue interest if you pay off your balance on time each billing cycle — it’s only charged when you carry a balance over from one billing cycle to the next. So if you pay off your balance in full each billing cycle (which is typically monthly), you can avoid paying interest on the charges you put on your credit card altogether. In essence, by doing this, you’re able to borrow money each billing cycle at no charge.
- Never skip a payment — Delinquent credit card payments can not only result in late fees and higher-than-normal interest rates, they can also harm your credit score — which can make it harder to secure a loan when you need one in the future. To avoid all these headaches while keeping your credit score intact, make sure you always make a payment on your credit card during any billing cycle when you’re carrying a debt.
- Consider making multiple payments per billing cycle — In most cases, there’s no rule against making more than one credit card payment per billing cycle. And a great strategy for avoiding missed payments (and the above-mentioned consequences they can bring) is to make payments before the due date, such as each time you get a paycheck or whenever you might have extra funds available.
- Try to keep your credit utilization rate low — Another reason to pay your credit card bills on time and to knock down your balance as much as possible each billing cycle is that your “credit utilization rate” plays a major role in determining your credit score. This is a measure of the portion of the available credit you’re actually using vs. the total amount of credit you have available. You can keep it lower (which gives a boost to your credit score) by keeping your credit card balances as low as possible.
- Carefully review your credit card statement regularly — Unfortunately, even the most careful among us can fall victim to credit card fraud. And by keeping a close eye on your credit card statements each billing cycle (or even more frequently by checking your credit card’s online account or app), you can more quickly identify any suspicious or fraudulent activity you may discover. If you do spot any unfamiliar purchases and/or charges, be sure report it to your credit card issuer’s customer service department as quickly as possible. The sooner you do so, the sooner steps can be taken to stop any additional fraudulent activities and reverse any fraudulent charges.
- Keep a copy of your credit card information in a safe place — If your credit card is ever lost or stolen, you’ll need to know your account information and your issuer’s details so you can report the card missing. So it’s a good idea to keep a copy of your credit card number and your issuer’s customer service phone number in a safe place at home so that you can cancel the card and report any fraudulent activity right away if this ever happens.
- Reap your rewards — Many credit cards offer rewards for use, with options ranging from cash back to travel perks, points and more. When you are looking for a new card, try to find one that offers a rewards program that’s compatible with your lifestyle and preferences. And if your current card offers a rewards program, take a deep dive into the details so that you can make the most of the benefits you receive from the program. (Of course, make sure you don’t get so caught up in the rewards program that you take on debt you can’t afford to pay back. Often, you can find ways to maximize your reward benefits with spending on necessities and/or other expenditures you already had planned.)
- Use your credit card as a budgeting tool — Many credit cards offer personalized websites and apps with features that help you track your spending. Often, they’ll even break your expenditures down into categories such as housing, food, travel, medical, entertainment, etc. for you. If you’re looking to create and maintain a household budget and take more control of your spending, these can be a great budgeting tools to leverage, especially for added insights on areas where you might be able to cut down on your spending and save.
Proudly serving South Carolina since 1933, Arthur State Bank offers accounts and services to meet a variety of financial needs. To help you achieve all your financial goals, the bank offers in-person service as well as a range of convenient digital solutions. To learn how Arthur State Bank can help you with banking needs ranging from checking and savings to retirement accounts, mortgages, other personal loans and more, visit arthurstatebank.com.