6 Credit card tips for smart users

Used responsibly, a credit card can be a very helpful financial tool. Making consistent, on-time payments can boost your credit rating, and some cards offer rewards for purchases or even a 0% interest rate for a short period of time on balances transferred from other credit cards.

But if your credit spending gets out of control, monthly payments and accumulated interest can become a problem. Follow these credit card tips to help avoid common problems:

1. Pay off your balance every month.

Avoid paying interest on your credit card purchases by paying the full balance each billing cycle.¹ Resist the temptation to spend more than you can pay for any given month, and you’ll enjoy the benefits of using a credit card without interest charges.

2. Use the card for needs, not wants.

A credit card should be used carefully. Frivolous purchases can lead to debt. Credit cards can be used in emergency situations, such as a mobile phone bill that’s due before your next payday. Use the credit card as a temporary loan to yourself, and then pay back the amount as soon as you can to decrease or avoid interest charges altogether.

3. Never skip a payment.

Pay your bill every month, even if the minimum payment is all you can afford. Missing a payment could result in a late fee, penalty interest rates and a negative impact to your credit score.

4. Use the credit card as a budgeting tool.

If you’re confident you can use a credit card responsibly and pay off the balance every month, try using it as a budgeting tool. By making all of your purchases with your credit card, you can see exactly how much you’ve spent at the end of the month. Of course, you should only do this if you know you can pay off the balance each month. To make sure your credit card spending doesn’t get out of hand, never charge more to your card than you have in your bank account.

5. Use a rewards card.

If you’re using a credit card for most or all of your purchases, it makes sense to use a card that offers rewards. Not only can you avoid paying interest, but you’ll also earn rewards such as cash, airline miles or retail points.

6. Stay under 30% of your total credit limit.

One way to keep your credit score healthy is to keep your credit utilization ratio under 30%. This credit utilization ratio is the percentage of total available credit that you’re using. For example, if your limit is $1,000 you should keep your balance under $300. But the ratio applies to the sum of all your cards – so if one credit card has a $3,000 limit with a $3,000 balance and a second card has a limit of $7,000 with no balance, you’re right at the 30% mark ($3,000 of an available $10,000) which is where you want to be.