Financial Education
Credit card debt has become a widespread issue in America, with a reported 47% of U.S. adults carrying credit card debt as of April 2020.* This statistic may make you want to abandon credit cards altogether, but that might not be the best strategy for your financial health. Responsible use of credit cards can help you improve your credit score, earn valuable rewards and make necessary purchases when you might not have the money on hand. Here are some tips on using a credit card wisely:
Make Timely Payments
Credit card holders receive a bill each month. This bill lists the total amount owed and the minimum payment amount. Making at least the minimum payment by the due date avoids any late fees. Plus, with payment history making up 35% of most credit score calculations, making on-time payments every month can help improve the cardholder’s credit score.
Pay In Full
Making a habit of paying just the minimum can get you into significant debt, especially as you accumulate interest on what you owe. Instead, it’s wise to charge no more than you can afford and always pay your bills in full. If you can’t pay in full, consider paying as much as you can to reduce the size of your balance that will accumulate interest.
Never Max Out Your Card
Every credit card has a credit limit, which is the maximum amount you can charge without being penalized. All of your credit card limits and balances are considered when calculating your credit score. This is known as your credit card utilization and is determined by dividing your balances by your credit limits. Keeping your credit card utilization below 30% is considered ideal. A higher percentage tells lenders that you may rely too much on credit, potentially lowering your credit score. Plus, it becomes much harder to pay all of your bills in full if you’re using most of your available credit.
Monitor Your Card’s Activity
When you pay with cash, it’s easy to see how much you’ve spent, and you’re limited by whatever’s in your wallet. Similarly, you can only use your debit card while your checking account has money. But with a credit card, you don’t hit any walls as you make purchases, making it easy to overspend. That’s why you should frequently check your credit card account to stay on top of spending. If possible, set up notifications for purchase alerts and balance updates. These tools may also help you catch potential fraud.
Take Advantage of Rewards
Rewards points, airline miles and cash back are great perks you can earn with most major credit cards. But be careful not to fall in the trap of spending more than usual in order to earn more rewards. Stick to the previously listed tips and you’ll be able to enjoy rewards without taking on debt.
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* Source: CreditCards.com