How do I use a credit card responsibly?

Don’t rely on a credit card to support a lifestyle you cannot afford.

According to a poll conducted by Gallup, 71% of Americans have at least one credit card, and the average credit card holder has 3.7 cards. A credit card can be a useful financial tool if used responsibly.  By making consistent, on-time payments, a credit card can help you build a credit history, improve your credit rating and help you form smart spending habits. Additionally, many credit cards offer rewards for purchases (cash back, reward points, hotel or travel points, etc.).

On the other hand, irresponsible credit card use can quickly lead to out-of-control spending, and ultimately, overwhelming debt. A study conducted by ValuePenguin showed that nearly 38.1% of all American households carry some sort of credit card debt. The average balance of this debt is over $5,000. To avoid falling victim to overwhelming credit card debt, it’s important to understand how to use a card in a responsible manner.

Whether you’re an experienced credit card user, or you’re new to using one, consider these tips for using a credit card responsibly:

Pay off your balance in full each month

A great rule of thumb for using a credit card is to only spend what you can pay off in full each month. Many people get a credit card with this common-sense goal in mind. But it’s easy to lose track of your credit-card spending if you’re not careful. Be sure to create and follow a sound budget that accurately reflects your income and tracks your expenses each month. By tracking your credit-card spending on a regular basis, you can be sure you are staying within your budget and will have enough cash to pay off your balance, in full, at the end of the month.

Review your statement every month

You should receive a statement each month. Be sure to review it for any changes in due dates, interest rates or fees, as these are subject to change. Additionally, review your statement for any signs of fraud. If you notice something strange on your statement, don’t be afraid to contact customer service for clarification, or if necessary, to dispute any charges.

Keep your credit utilization low

Credit utilization is an important factor in determining your credit score. Many consumers aim to keep their credit utilization under 30% of their limit. Keeping your credit card spending to a reasonable level and not maxing out your limit can help you develop good spending habits. It can also help improve your credit score over time.

Don’t miss a payment

Missing a payment can not only negatively impact your credit score, but it can quickly lead down the road to overwhelming credit card debt. Set a reminder in your phone, write it on your calendar, or set up automatic payments to help make sure you never miss a payment. Paying off your balance in full each month is ideal. But making the minimum payment at the very least can help you avoid damaging your payment history and credit score.

Prioritize responsible usage over earning rewards

Many credit cards offer rewards for making purchases with the card. This can include anything from cash back to hotel and travel points. These perks can be beneficial and you may be tempted to rack up the rewards points. But your primary focus should be using your card responsibly and making smart purchasing decisions. By overspending on your card each month to get more rewards, you may quickly find yourself in credit card debt.

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