Getting a credit card is a rite of passage for many adults. It’s a great way to build credit and establish financial stability. But if not used wisely, credit cards can be a financial nightmare that will haunt you for years. Thus, owning one is a responsibility you should take seriously and carefully.
Whether you’re new to credit cards or have been using them for years, knowing some tips on how to be a smart credit card user can help you stay out of debt and improve your financial health.
If you’re a credit card owner, here are eight of the best tips to make the most out of it smartly:
Spend Within Your Means
It’s probably the most important tip on this list. Just because you have a credit card doesn’t mean you have to spend all of your money. Only spend what you can afford to pay off each month. It will help keep you out of debt and improve your credit score.
One way to help you stick to this rule is to only use your credit card for things you usually buy with cash. That way, you’ll be less tempted to spend more than you can afford. You can also set a monthly budget for your credit card spending and ensure you stay within it.
Pay Your Bills on Time
This tip goes hand-in-hand with the first one. When using your credit card, pay your bill on time each month. It will help you avoid late fees and keep your interest rates low. It will also help you improve your credit score over time. But if you’re worried about forgetting to pay your bill, set up automatic payments from your checking account. That way, you’ll never have to worry about it again.
You can also set up reminders on your phone or calendar so that you don’t forget. Just be sure to set them up far enough in advance so that you have time to make a payment. But if you’re ever in a pinch and can’t pay your bill on time, you can consider taking out a loan CreditNinja or other lending site offers. You may also opt to call your credit card company and explain the situation.
Keep Your Balance Low
Credit cards usually have high-interest rates, so keeping your balance low is essential. That way, you’ll save on interest and avoid debt.
A good rule of thumb is to keep your balance below 30% of your credit limit. If your credit limit is $1,000, you should keep your balance below $300. One way to help you achieve this is to pay off your balance in full each month. That way, you’ll never have to worry about interest.
Another way is to make multiple monthly payments so that you’re never carrying a balance. You can also transfer your balance to a credit card with a lower interest rate. Just be sure to read the fine print before you do because there may be fees involved.
Don’t Close Old Accounts
It may be a good idea to close old credit card accounts you don’t use anymore, but it can hurt your credit score. That’s because closing an account will decrease your credit utilization ratio, which is the amount of debt compared to your credit limits. If you have a $2,000 credit limit and a $1000 balance, your credit utilization ratio is 50%. But if you close one of your credit cards, your ratio will increase to 66%.
It’s also important to keep old accounts open because they help improve the length of your credit history. So, unless you’re being charged an annual fee or carrying a balance, keeping your old accounts open is usually best.
Don’t Fall for Credit Card Offers
There are many enticing offers for new credit cards out there, but it’s essential to resist the temptation. Just because a credit card has a low-interest rate or a great rewards program doesn’t mean it’s the right card for you. Make sure you research before you apply for a new credit card.
You should also be wary of signing up for a credit card to get a sign-up bonus. These bonuses usually require you to spend a certain amount of money within the first few months. So if you can’t afford to spend that much, you’re better off not getting the bonus. You could end up with a high-interest rate if you carry a balance.
Credit cards can be a great tool if used correctly and responsibly. But it’s important to know how to use them before you start using them. By following these tips, you’ll be on your way to financial success. So be sure to keep these tips in mind the next time you use your credit card to make a purchase.