Credit cards can be an incredibly valuable tool in your financial life. For one thing, they help you build up a credit history, which can help boost your credit score. Plus, you can often get rewards like cash back and travel points when you make purchases.
On the other hand, if you’re not careful with your credit card usage, it can be all too easy to rack up a balance that you’re unable to pay off at the end of the month. Luckily, there are practical tips that can help you use your cards responsibly. Here are some good credit card habits to start building now.
- LOOK AT YOUR SPENDING
If your credit card spending is starting to feel out of control, take a step back and consider the reason. For instance, if you overspent due to a one-time unexpected expense, this could be a good time to either start or replenish your emergency fund so you don’t have to rely on a credit card during a financial emergency. Or, if you’ve accrued a high balance due to more frequent overspending, it’s time to create or revisit your monthly budget to make sure you know how much you can comfortably spend without having to go into debt.
If you’re carrying a balance, set up a plan to pay down your credit card debt. Start by listing out the interest rate of each of your cards and contacting your lender to see if they will lower the rate. If not, look into switching your balance to a low or 0 percent interest credit card. From there, you can start focusing on paying down the card with the highest interest rate first (a strategy known as debt avalanche method) while still paying the minimums due on your other cards.
- USE ONLY ONE CARD
When you use multiple credit cards for your purchases, it can be harder to keep track of where your money goes. If you need to streamline your spending, consider sticking with just one card, and choose one that offers the rewards that matter most to you, whether that’s cash back, travel rewards, or points that can be used toward future purchases.
That said, be sure to keep your other accounts open. Why? The length of your credit history is a factor in determining your credit score — and the longer your account history, the better. Another factor that affects your score is your credit utilization, or the percentage of your total available credit you’re using. The smaller your utilization, the better. So even if you’re only actively using one card, having your other cards open means credit bureaus can see still see the total amount of credit available to you that you’re not dipping into.
If one of your unused cards charges an annual fee, call the issuer to ask if they’ll switch it to a no-fee card. If not, see if you can transfer your available credit line to another card.
- READ THE FINE PRINT
Generally, your goal should be to avoid carrying a balance on your credit card from month to month. But if you do, it’s important to know what your annual percentage rate is, whether that’s set to change, and if you’ll be charged a penalty for missed payments (in addition to late fees). You can find these details in your credit card agreement.
While you’re at it, look to see if your card offers any benefits you may not have known about. For instance, you may find it provides a collision damage waiver for rental cars or price protection for your purchases.
- MAKE ON-TIME (OR EARLY) PAYMENTS
Did you know that 35 percent of your credit score is determined by your payment history, as in whether you pay your bills on time. If you’re having difficulty remembering your statement due date, set a calendar reminder for yourself.
Another option is to pay down your credit card every time you get a paycheck, whether that’s weekly or biweekly. More frequent payments means fewer charges to review and, if your spending does get off track, it will be easier to course-correct the following week.