Credit cards offer many benefits. They’re safer than carrying cash. You can shop online and take advantage of the competitive prices that online retailers offer. If you travel, you’ll need a credit card to purchase airline tickets and reserve a hotel room. Credit cards empower you to immediately cover the cost of emergencies, such as when your car breaks down.
If you use your credit cards responsibly, you can build credit that will open the door to affordable financing for other things such as buying a car or home. However, too many consumers find themselves with credit card debt that they can’t manage. Credit card debt is one of the leading causes of bankruptcy.
Here are six tips to help you manage your credit cards responsibly so that you reap all the rewards and avoid the penalties.
1. Pay your balance in full
Credit cards are what is known as revolving debt. You have a credit limit. As you pay the bill, the credit limit refreshes. Interest is applied to your balance. For instance, if you never use the card, you don’t pay interest. If you charge $1000 and pay only $500, you’ll owe interest on the remaining $500. Credit card companies make money off the interest. Do everything you can to pay the balance in full each month. Paying only the minimum may be easier on your budget, but the total interest you pay could ultimately exceed the cost of what you purchased.
2. Pay the bill on time
Your payment history makes up 35% of your credit score. Consistently paying late negatively impacts your credit score. Credit card issuers will usually give you a grace period and not report a late payment right away. When you don’t pay on time, not only do you impact your credit score, but the issuer can raise the interest rate and charge you late fees. An excellent way to manage your credit cards responsibly is to download payment apps or other fintech products that will help you pay your bills on time.
3. Use your credit card sparingly
Credit cards are beneficial for all the reasons mentioned earlier. Yet, at the same time, it’s easy to forget about that budget you created. A credit card doesn’t have the same feel as pulling cash out of your wallet. It’s easy to lose track of how much you charged to the card until the bill arrives. Think of your credit cards as tools that empower you to make smart purchase decisions, cover emergencies, and improve your financial health.
4. Negotiate a better interest rate
Lenders make decisions about what interest to charge you based on your credit score. If your credit score has improved since you first received your credit cards, get in touch with the issuer and ask for a better rate. A lower interest rate makes your monthly payment more manageable if you are carrying balances on your cards.
5. Constantly evaluate
Are you paying an annual fee? Maybe in the beginning, it made sense, but today there are credit cards with no annual fee. Contact your carrier and ask them to waive the yearly fee or provide rewards benefits to compensate. Are you managing your credit cards to maximize points or cashback rewards? It may be better to use one card at the supermarket and a different one for travel or dining out. Don’t miss out on valuable rewards that can save you money.
6. Check your credit report
There are many scams in play today, such as skimming and hotspot scams. Be careful when you use your credit card. Never charge anything over unsecured networks. You may never know if you’re a victim of credit card scam. For this reason, it’s particularly important to check your credit report at least once a year. You’re entitled to one free report annually from each of the credit reporting agencies. If you see fraudulent activity, report it right away.