Credit cards can be a very helpful financial tool if used responsibly. Using them for purchases may result in rewards, such as cash back, miles, or points. Some of your purchases may even be insured if bought with a credit card! Even more, making your monthly payments on time can boost your credit score, which will help you qualify for lower interest rates when you need a new line of credit.

But, while credit cards can be immensely helpful in theory, not using them responsibly can create a terrible situation – fast. If you accumulate debt month-to-month, it can potentially become a vicious cycle that you may never get out of. Unfortunately, this April, outstanding credit card debt hit a new high, indicating that this problem is more prevalent than ever. Having your credit card debt slumbering in the distance may give you headaches and stress, and nobody wants that, right? You should be able to take full advantage of this powerful financial tool in a safe and responsible way. So, let’s review 10 tips that’ll help you do just that.

1. Do your research

Before you apply for credit card card, you’ll want to know what you’re getting yourself into. Start by researching the types of credit cards available to you, and narrow it down to the ones that make the best sense for your situation. There could be a number of things you’re looking at – fees, rewards, interest rates, etc. Once you identify the type of card you want (i.e. secured vs. unsecured credit card), you’ll want to narrow down to the specific card you want, and then apply.

Once approved, make sure to carefully ready our agreement and knowing your terms before you sign anything. Take note of the billing cycle, fees, and your interest rate. That way you make sure you are picking the right card that’s right for you.

Pay particular attention to any fees that you’ll need to pay. This may include an annual credit card fee, late fees, balance transfer fees, maintenance fees, etc. These fees can quickly add up, and by knowing about them beforehand, you won’t have to face any unwelcome surprises.

Make special note of the billing cycle and due dates to make sure you are paying on time. If you are comfortable with the terms, then you can sign for the card.

2. Pay on time every month

After you know your contract by heart and have your new credit card in your possession, it’s time to start using it. One of the most important tips for anyone using a credit card: make sure you pay on time every single month. Even if you do not have the money laying around to pay the balance in full, make sure to at least pay the minimum amount to avoid any late fees. That brings us to the next tip.

3. Always try to pay more than the minimum (or better yet, pay in full)

Most credit card issuers won’t ask you to pay the full amount of your outstanding balance each month. The minimum amount you’ll have to pay is often a flat percentage, a flat fee, or a percentage plus accrued interest and fees for that billing cycle.

While it may be tempting to only repay the minimum amount of your outstanding balance, always try to pay more if you can. Making minimum payments for a prolonged period can lead to huge sums of interest charges over time. You may even end up paying more in interest than if you would have made larger payments in the first place.

The holy grail of making your credit card payment is paying your bill in full every month. That way you may avoid having to pay interest charges altogether, plus you’ll save yourself the sleepless nights tossing and turning about how you’re going to deal with your outstanding balance. Win-win!

4. Avoid overspending

Even though you may have been approved to spend a certain amount of money on your credit card – your credit limit – it’s wise not to max it out. Apart from the risk of over-limit fees, higher minimum payments and higher interest charges, it will also impact your credit utilization ratio, which is an important factor in calculating your overall credit score.

Your credit utilization is the amount of available credit being used divided by the total amount of credit you’ve been issued. So, for example, if your credit card was approved for a $5,000 balance, and you’ve used $500 of that balance, your credit utilization would be 10%. The general rule of thumb is to keep this ratio under 30% to avoid negatively impacting your credit score.

In the FICO score (the most widely used credit scoring model in the U.S.), your credit utilization ratio contributes a whopping 30% to your overall credit score. This means that it’s only second to your payment history! If you care about your credit score, you may want to think twice before maxing out your limit.

5. Manage (or create!) a budget

This brings us to tip number 5: track your spending. First of all, and this ties in with tip 4, by tracking your spending you can keep a close eye on your credit utilization ratio. Plus, by regularly maintaining a budget, you can make sure that you’re spending within your means. And while this is important for responsible use of your credit card, spending within your means is tantamount to your financial health overall. If you need a budget template to help you track your spending, download my free financial checklist which includes my automated budget template.

6. Opt in to account alerts

If you go into your online bank portal to check on your spending, you might as well set up some handy alerts for your credit card. Setting up alerts is just one way to keep in control of your credit card expenses. It’ll allow you to take note of anything that might require an action from you, ultimately helping you to use your credit card responsibly.

Most card issuers websites or mobile apps let you set up alerts to notify you whenever your credit card is approaching the limit, when your monthly payment is due, and every time a transaction is made. These alerts will allow you to take action in due time. That way you’ll never have to deal with late fees or over-limit fees, plus you’ll know instantly if there’s a transaction you don’t recognize. I set up bank alerts in 2020 and I can honestly say it has helped me be more aware of my spending.

7. Report a lost or stolen credit card immediately

In today’s day and age, small transactions can be made via contactless methods. But even bigger transactions can still be made with only a signature.

To counteract this, make sure to report your lost or stolen card immediately. And besides reporting it immediately, whenever you lose your credit card, make sure to monitor your credit card statement closely so you can act swiftly if there’s any suspicious activity on your card.

8. Take advantage of rewards

Apart from being an easy way to make your purchases, many companies offer rewards to get cardholders to use their cards. These rewards can take the form of cash back, miles, or points. Don’t sleep on them, because using your rewards to your benefit can save you a lot of money in the long run!

An important way to maximize your rewards is by choosing the right card best matches your goals and spending habits. Depending on your spending habits, one credit card may be better suited for you than another. For example, if you travel often, you might want to get a card that rewards travel expenses. Also, some cards offer higher rewards for specific categories, like dining out, groceries, or gas. Try to use the right card for its own respective spending category.

To actually enjoy the benefit of these rewards, you’ll still want to adhere to the other tips we share in this article, such as paying your monthly payment on time. Interest charges can quickly outweigh any rewards you earn, so always aim to use your card responsibly. Don’t fall into the trap of “it’s okay to buy something, because I’m getting cash back”.

9. Check your credit score regularly

Frequently monitoring your credit score may help motivate you to use your credit card responsibly. Or it’ll give you a sign that you need to course correct. Many credit card companies offer your credit score as a perk of being a cardholder. Be sure to check in regularly.

Also, mistakes can happen in credit reports. Even the people at the credit bureau make mistakes! By checking your credit report regularly, you’ll allow yourself to correct any mistakes that may occur. Identifying and correcting them will ensure you’re not unfairly penalized in terms of credit opportunities.

It’s never too late to start using your card responsibly

While a credit card can be a helpful financial tool if used responsibly, it can also quickly become a liability if not used right.

As long as you know your terms, don’t spend more than you can afford, and always make your monthly payment on time, you’ll be on your way. Additionally, it’s important to pick the right credit card for you and start making full use of the rewards that come with it.

Another option is a secured credit card. A secured credit card requires an upfront cash deposit, which is your spending limit. It’s a smart way to help build credit without worrying about overspending or making late payments.

If there’s one thing you take away from this article, it’s that applying for a credit card is something that should not be taken lightly. It’s a major financial decision that comes with a great deal of responsibility.

Please remember: if you ever find yourself in a hard situation with credit card debt, you can get out of it with the right plan and discipline. It’s never too late to start using your credit card responsibly.

The post 9 Tips for How to Use a Credit Card Responsibly appeared first on College Ave.