The 8 Cardinal Rules of Using a Credit Card

by The Ascent Staff | Updated Aug. 28, 2022 - First published on Aug. 27, 2019

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Credit cards offer many benefits, but only if you use them right.

Using credit cards as "free money" can lead to financial destruction. Living in credit card debt can feel overwhelming, and getting out of debt can seem impossible. But credit cards aren't inherently evil. If you use them right, they can raise your credit score, save you money on everyday purchases, and help you travel for free, as a few examples.

Using the simple rules below, learn to use your credit cards responsibly.

1.  Pay your credit card bill on time

Know your credit card bill's due date. Paying your bill one day late is a $25 to $35 mistake. Interest also accrues on the balance immediately and daily. The longer you wait to make your payment, the more interest you'll owe.

If you make a habit of making your payments late, the credit card company may also increase your APR. According to the Credit Card Act of 2009, credit card companies can increase your interest rate once your payment is more than 60 days late.

2.  Pay your credit card bill in full

You can avoid interest charges if you pay your balance in full within the 25-day grace period. It's just like paying cash; you only spend as much as you have. If you only pay part of the balance, though, the remaining balance accrues interest. If you let the balance get out of hand, the debt may snowball, costing you much more than the original balance.

Although paying the monthly minimum keeps you within your contractual obligations and doesn't affect your credit score, interest will accrue on the remaining balance. For example, paying the minimum payment (assuming a 2% minimum required payment) on a $5,000 balance with a 19% interest rate costs $4,985 in interest and takes 8 years and 4 months to pay off in full. Your $5,000 purchase almost doubles in cost.

If you can't pay off your balance in full, then pay as much as you possibly can to reduce the interest you pay.

3. Keep your credit utilization ratio low

If you do leave a balance on your credit cards, keep it low. Your credit utilization ratio accounts for 30% of your credit score. Your credit utilization ratio is your total credit card balances divided by your total available credit. If your utilization ratio exceeds 30%, your credit score may fall.

Keep in mind that your utilization ratio is a combination of all of your credit card balances. If you max out one credit card (which we don't recommend), but another has a low balance, it may even out for the sake of your credit score. For example, if one credit card has a $3,000 limit with a $2,000 balance, but you have another credit card with a $5,000 limit and $200 balance, your utilization ratio would be 27.5%.

4. Only charge what you can afford

If you don't have the money to pay the balance in full, don't charge it. Many people use credit cards as a way to buy wants rather than needs. Instead, use it as a way to protect large purchases or to cover you temporarily, knowing that you can pay the bill off in full within the grace period.

Even if you think you're getting a great deal that you have to jump on, the interest charges can trump the savings of the discount. Think long and hard before charging something you don't need and can't pay for right now.

5. Read your statement each month

Errors show up all the time on credit card statements. Check your statement for duplicate charges or subscriptions you canceled. Looking at your statement each month also helps you understand where your money goes. You can then refocus your spending if necessary.

Checking your credit card statement each month can also help you catch fraudulent charges. While many credit card companies catch these charges before they hit your statement, it's always better to double-check.

6. Choose cards that suit your needs

Know the reason you want a credit card. For example, if you fly frequently and can use airline rewards, an airline mileage credit card works well. If you never fly, though, an airline mileage card won't do much for you. Instead, find a card with benefits you'll use. For example, some credit cards offer travel benefits, while others offer cash-back or statement credit rewards. Think about what's most important to you.

If you know you'll carry a balance on the credit card, forget the rewards. Instead, look for a 0% intro APR credit card. If you pay the balance off before the promotional period ends, you won't pay interest. Just make sure you read the fine print so you know when the promo period ends.

7. Avoid cards with annual fees, in most cases

You should only pay an annual fee for a credit card in unique circumstances. If you know you'll earn rewards that offset the annual fee and you'll use them, go for it. Otherwise, look for no-annual fee cards that still offer decent rewards.

8. Don't close old credit card accounts

The average age of your credit accounts affects your credit score, and the older it is, the better. If you close every credit card after you pay it off, you decrease your average account age, hurting your credit score.

So long as your credit card doesn't have an annual fee, keep it open. If you don't want to use the card, lock it up in a safe or give it to a relative to hold on to.

Use your credit cards responsibly

Credit cards can be great when used right. They offer protection for large purchases and eliminate the need to carry cash, especially while you're  traveling. Knowing how to use them without overspending can help you stay financially strong.

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