Having a credit card offers you access to money you don’t have. Although it may be tempting, credit cards are not for reckless and excessive spending. Instead, they can teach you about financial responsibility and help you build a good credit score—if you use them correctly.
The key to being a responsible cardholder is more than simply making a payment towards your credit card balance at the end of each cycle. On top of responsibility, you must also have control, discipline, and good budgeting habits. Continue reading to learn five credit card tips for being a responsible cardholder.
1. Be picky with your purchases
When you first get a credit card, it is easy to fall into the trap of swiping your card for every purchase. You could potentially buy a new handbag, pay for gas in your car, shop for new shoes, get new school supplies, score tickets to a game, purchase groceries, and go out to dinner with your friends in the same month. However, you’d soon find that your credit card bill is more than you can afford.
To avoid this situation, it's important to be picky with what you use your credit card for. Using your card for “wants”, like the handbag, new shoes, or fancy dinner, is not the most responsible. You should reserve your credit card for buying the items you need, such as gas and school supplies instead.
It’s also imperative that you keep the future in mind when using your card. You never know when you may need your card for an emergency situation or a big future purchase. To be prepared for financial emergencies, it’s a good idea to always remain well below your credit limit, which is the maximum dollar amount that a credit card lender will allow you to borrow at one time. Additionally, if you remember that credit bureaus will provide the credit history you’re building now to other lenders you may utilize in the future, then you will be more likely to make the right decisions with your credit card.
2. Aim to pay your full credit card balance every month
Each month, you will receive a credit card bill. This statement has all of the transactions you made throughout the month and the total amount owed to your credit card issuer. This is known as the credit card balance. Each time you get a statement, you can choose to pay off the entire balance, the minimum monthly payment required by your credit card company, or any amount in between.
Whenever possible, you should aim to pay your credit card balance in full on or before the due date. Avoiding carrying a balance will ensure you won’t have to pay interest charges on the purchases you’ve made, and you’ll be less likely to accumulate credit card debt. Some months, you might not be able to afford to pay your full bill. If this is the case, you should try to pay at least minimum payment due in order to avoid late fees. Every time you are unable to pay the entire statement, the rest of the balance will transfer to next month.
A bad payment history can also prevent you from being granted a credit line increase. This is why it is important to use your credit card for what you know you can pay off and pay the full balance whenever you’re able to.
3. Avoid skipping payments
When life gets busy, credit card payments are easy to forget. Whether you skip your monthly payments on purpose or by accident, the issue is all the same to credit card companies. If you can’t afford to pay your bill, it’s beneficial to pay as much as you can, even if the amount you’re contributing seems insignificant; when it comes to managing a credit card account, making a partial payment is better than paying nothing at all.
One way to make sure your bill is always paid on time is to automate your payments. You can set the date for your bill to be paid on or even a few days prior to your due date. However, you don’t want to get too comfortable. If you don’t have to log in to your credit card account to pay your bill, you might start spending more. This can lead to charging more on your credit card than you actually can afford.
Besides the debt that you could accumulate if you start to miss payments, there are other financial consequences that can occur. As you know, credit scores are used to determine many important things, like loan interest rates or renter credibility. It only takes one missed payment for your credit score to potentially be affected. It’s best to do everything in your power to take preventative measures to avoid missing a payment.
4. Use the credit card as a budgeting tool
Not only can you use your credit card to track your spending, but it can also help you stay on top of your budget and provide you with a way to cover important purchases. Credit cards are used to help pay for expenses in college, so don’t be afraid to use your credit card when you’re running low on cash or are in-between paychecks.
It’s a good idea to set a spending limit on your card that is lower than your credit line. Some responsible credit cardholders aim to keep their credit utilization ratio at 30% or lower. Credit utilization is the amount of credit you are currently using divided by the total amount of credit you have available. Keeping your balance below your credit line makes it easier to pay off your card in full each month!
When you become more comfortable with your credit card, try using your account as a budgeting tool. If you have a rewards credit card, your credit card may offer larger rewards as you build up your credit. It’s surprising how easy tracking your finances can be when you budget with a credit card.
5. Watch for suspicious activity
Dealing with credit card fraud and theft are inherent risks of having one, but you can decrease the risks just by being aware. Understand your credit card provider's security policy and the card's security features. Always report fraud or suspicious activity on your card immediately and monitor your statements.
Protect both your credit and your bank account by keeping an eye out for all unfamiliar transactions and deposits, regardless of the dollar amount. Be sure to report and replace lost or stolen cards immediately. Identity theft and fraud are scary, so make sure you’re paying close attention and not leaving your credit card information where others can see it and take advantage of it.
Being a responsible card holder is one of the most important aspects of having a credit card. It can be very easy to let monthly payments and fees slip through the cracks, which is why it’s crucial to stay on top of your finances. Credit cards can be intimidating at first, but as long as you follow these tips and use your card responsibly it should be a breeze!
