10 Tips for Managing Credit Responsibly

When you get a new credit card, it can be tempting to rush out and spend. However, it is important to remember that credit, although it can help you make purchases that you might not otherwise be able to afford with cash (such as a home or a car), is not “free” money.

When used responsibly, a credit card may help you boost your credit score, earn rewards, and even be an effective budgeting tool. Getting your first credit card is a major financial step, and knowing how to use one may keep you from causing long-term damage to your financial health in the form of debt and a wrecked credit score.

Credit card companies may offer reward perks, additional card offers, and extended credit limits which can all be tempting but pose a challenge to your self-control. Arming yourself with knowledge will help you avoid falling into these temptations. These tips will help you demystify credit cards and show you how to use them the smart way.

But if your credit spending gets out of control, monthly payments and accumulated interest can become a problem. Follow these credit card tips to help avoid common problems:

• Pay off your balance every month. Avoid paying interest on your credit card purchases by paying the full balance each billing cycle. Resist the temptation to spend more than you can pay for any given month, and you’ll enjoy the benefits of using a credit card without interest charges.

• Only spend what you can afford: Don’t rack up a larger credit card balance than you can afford to pay in full when the bill is due, except in certain situations where you can carry a balance interest-free.

• Make every payment on time: When it comes to credit card management, it’s crucial to make your payments on time. Late payments can trigger late fees, interest rate increases, credit limit reductions, and even account closure. Furthermore, if you fall behind by at least 30 days on your credit card payment, you may end up with a late payment on your credit reports. When a late payment notation appears on your credit reports, it indicates that you’re a riskier borrower. As such, on-time payments are essential to earning and maintaining good credit scores. It is the single most important step you can take when it comes to managing your credit card, and there should never be an exception to this rule.

• Know your limits: If you’re worried that you might overspend, ask your credit card company to lower your credit limit to something you know you can manage on a monthly basis. They should be more than happy to oblige since they ultimately want you to pay the money back, and they can often make the credit limit change effective immediately. Not everyone wants a $10,000, $5,000, or even $3,000 limit on their cards, and that’s okay.

• Plan for how you’ll pay: When you make a purchase with your credit card, you should have a plan for how you’re going to pay off the balance when your bill comes. If you don’t know how you’re going to afford to pay for a purchase, don’t buy it until your financial situation makes it possible for you to do so. Remember, making a purchase on a credit card is like taking out a loan and you should never take out a loan without knowing when and how you’ll pay it back.

Don’t Max Yourself Out

Try not to reach your maximum credit limit. That’s because creditors don’t like to see someone using all their available credit. The reason is they believe if you’re using up all the credit available to you, you’ll likely have trouble paying it off. In general, it’s best to only use about 30% of the credit available on all of your credit cards.