Credit cards are powerful tools for accessing financing and building your credit profile, whether you’re using a personal or business credit card. However, they can also have an adverse impact on your credit score and debt levels if you use them irresponsibly. Focusing on these expert-approved credit card tips, such as consistent monthly payments, can help you avoid common pitfalls and take full advantage of your cards.
Credit Card Advice You’ll Learn in This Article
1. Pay your bill off every month
2. Set a budget and spend less than 30% of your limit
3. Use a rewards card that aligns with your spending habits
4. Use interest-free financing offers to your advantage
5. Pay off high-interest credit cards first
6. Stay away from cash advances
7. Check your credit score before applying
8. Report a lost or missing credit card immediately
1. Pay Your Bill Off Every Month
As a credit card guru who has not only reviewed dozens of cards on the market but also owns a suite of cards, I always recommend paying your monthly bill in full. From a spending perspective, it’s understandably tempting to spend carelessly because credit cards can feel like free money. However, that’s not the case. Interest charges can accumulate on unpaid balances quickly, sending you spiraling off into a debt trap that will add to the $1.08 trillion in credit card debt throughout the United States.
Trust me when I say this: Getting out of credit card debt is one, not fun, and two, not easy. You should stay far away from the bad habits that caused 55% of Americans to fall into credit card debt, such as ignoring your monthly statement and carrying balances continuously from one billing period to another.
2. Set a Budget & Spend Less Than 30% of Your Limit
Don’t get me wrong, owning a credit card with a large credit limit can entice you to live beyond your means. However, spending what you can’t afford is an easy way to get yourself into financial trouble. Instead, set a budget you can afford to repay and aim to spend less than 30% of your credit limit. Doing so will not only keep your statement manageable but also help improve your credit score by maintaining a low credit utilization ratio.
Credit utilization ratio: The amount of credit you’re using compared to your total available credit limit, which can be calculated per card or for all the cards you own. A good ratio typically ranges between 0% and 30%.
Fortunately, on average, Americans with credit cards do well with spending below 30% of their limit. For example, according to Experian, in Q2 2019, the average credit card balance was $6,194, and the average limit was $31,015. This means people with cards in the US had an average credit utilization ratio of about 20%—$6,194 divided by $31,015. Ratios of this level will help you maintain a good credit score, increase approval odds, and keep your credit card bill within your means.
3. Take Advantage of Credit Card Rewards
While credit cards can help you access funds you might not have in the bank, they’re also a handy way to earn rewards on everyday transactions. Most cards offer reward structures that incentivize you to use your card, which 79% of cardholders say is the most attractive feature on their favorite cards. Depending on the card, you can earn up to 5%, sometimes even more, on purchases like groceries, gas, US streaming services, and travel expenses.
It’s crucial to choose a card that offers rewards in spending categories that align with your habits to maximize your rewards. For example, if you spend big in one specific category, such as groceries, then choose a card that pays more lucrative rewards in that category. However, if your expenses vary across several categories, then choose a card that pays a fixed-rate like unlimited 1.5% cash back or 1 point per $1 spent.
4. Use Interest-free Financing Offers to Your Advantage
Not only do credit cards allow you to access additional capital and earn rewards, but some even entice you with introductory interest-free financing, or 0% annual percentage rate (APR) offers that can reduce the blow to your debt. This means you can float your balances from one billing cycle to another without being charged interest during the introductory period. These 0% APR offers apply to purchases or balance transfers, or both, and can last for up to 21 months.
Using this piece of credit card advice can be extremely beneficial whether you need help financing a larger purchase or consolidating your debt from other high-interest credit cards. If you know you need this kind of financing, be sure to only look for cards with an offer that aligns with those financing needs. However, make sure you repay your balances before the introductory period ends and when the ongoing APR comes into play.
5. Pay Off High-interest Credit Cards First
If you have multiple cards that are racking up debt, it’s crucial to focus on those that charge the most interest first. This typically will allow you to save the most money as you work toward paying off your debt. The longer you let the high interest add up, the more you’ll have to dip into your wallet. While the average credit card interest rate is 16.03%, it can skyrocket up to 25%.
There are other ways you can save money besides targeting your high-interest cards first. If you’re open to applying for a new card, you can look for an interest-free financing offer that applies to balance transfers. This lets you move all your existing debt onto a new card with 0% APR for an extended time period, typically up to 21 months. You’ll be able to repay those balances over time without interest; however, issuers will likely charge a balance transfer fee of 3% or 5%.
6. Stay Away from Cash Advances
Although credit cards allow you to request a cash advance—or withdraw cash from an ATM using your card—they are much more expensive than a typical card purchase. Unless you need cash quickly to cover an emergency, I do not recommend falling in the habit of using your credit card to withdraw money from your bank account. In fact, they’re so expensive that I would never utilize this feature of a credit card.
Here’s an example to show the financial damage cash advances can cause. According to CreditCards.com, cash advances have an average APR of 24.80%, which is applied immediately, and typically have an additional flat-rate fee of 10% or $5, whichever is greater. For example, if you withdraw $100, you’ll be charged $24.80 in interest and $10 in flat-rate fees. This means you’ll owe $134.80 on your bill for an original withdrawal of $100.
7. Check Your Credit Score Before Applying
Applying for a card before checking your credit score is a risky move because there’s a slight chance you don’t qualify. When you apply, issuers typically run a hard credit check, which can ding your score up to five points and stay on your credit report for two years. Knowing if you qualify for a card or not can help avoid submitting multiple applications and, therefore, reduce the number of hard credit inquiries on your report, saving your score from any major pitfalls.
Most cards require a personal credit score of at least 640, which FICO considers to be a good score. What’s more, according to Experian, in Q2 2019, the average credit score in the US was 703, meaning if you fall into that group of people, you should qualify for several different cards. You can check your credit score for free through several different issuers. Plus, there’s no need to worry about hurting your score because checking your score on your own requires a soft credit inquiry, which has no adverse effect.
While my extensive experience has shown me how important it is to know your credit score before you apply for a card, I’m not the only expert who adheres to this tip. My colleague from Experian backs this piece of advice too.
It’s very important to check both your credit report and credit score before applying for credit. Knowing your credit score ahead of time will give you a better idea of how likely it is you will be granted credit. A higher credit score opens up opportunities for accessing credit at better terms.
You can also determine if there are steps you can take to increase your credit score, such as paying off some debt. Understanding your credit score and what factors are affecting it from your credit report gives you control over the application process. You’ll be empowered to address any issues early on.
—Rod Griffin, Experian, Senior Director of Consumer Education and Advocacy
8. Report a Lost or Missing Credit Card Immediately
Although 246,763 reports of credit card fraud were linked to new accounts in 2019, you can still be at risk of fraud when you lose or misplace a card. If this happens to you, it’s crucial to report the incident to your provider right away. Most issuers make this process simple by letting you lock or replace a lost card through their mobile app. If, for some reason, you don’t have this option, be sure to call your bank directly to ensure you avoid any instances of credit card fraud.
Following credit card advice can help you unlock your card’s full benefits, avoid credit card mistakes, and allow you to take advantage of the additional capital that comes with it. If you get a card and use it responsibly, you can expect to improve or build your credit score, receive higher credit limits, and even develop a credit history that can help you qualify for future financial products.