The Ten Commandments of Responsible Credit Card Use
Credit cards get a bad rap sometimes. They’re blamed for consumers’ smothering debt or high interest charges. In reality, though, credit cards are excellent tools for building a credit history, earning cash back, and allowing for financial flexibility. It’s all in how you use them.
If you manage your credit card use responsibly, there’s no reason that they can’t be free, credit-building machines that work for you every single day – and maybe even earn you free money while they’re at it. Let’s take a look at the ten commandments of using plastic, and why they matter.
Thou Shalt Not Carry a Balance
The first, and most important, rule of credit card use is to avoid carrying a balance. It is not only a bad habit (that can easily spiral into serious credit card debt), but it’s expensive. Just don’t do it.
An introductory 0% APR offer can be tempting and may be a good idea if you have a very large purchase to make. It allows you the flexibility to spread your balance over a few months, which can be helpful with an emergency or unexpected expense. It can also make it easy to get in over your head.
If you don’t have an introductory 0% offer, carrying a balance means paying compound interest, often at rates of 20% or more. That $1,000 on-sale television that you had to have? It could wind up costing you $1,300+ with interest.
Thou Shalt Read the Fine Print
One incredibly easy way to get in trouble with your credit card account? Don’t read what you’re signing up for. Failing to read the fine print with your new credit card (or the updates that are sent over the years as you own a card) makes it easy to get in hot water. You could wind up spending a lot of extra money in fees and fines or losing out on excellent benefits. Make sure that you read every word (no matter how boring) and understand every aspect of your account.
Thou Shalt Always Pay on Time
Paying a credit card late is an awful idea, every single time. Not only will you incur fees (as much as $38 per), but you’ll also be at risk for a negative report on your credit and a penalty interest rate on your balance. Only bad things can come from a late payment.
The easiest way to avoid this is to set up automatic payments with your credit card company. You’ll never have to worry about forgetting a due date that way. If you accidentally pay late one month, give your issuer a call; they’ll often waive the fee for your first late payment, and you can possibly avoid it being reported to the credit bureaus.
Thou Shalt Earn Rewards
If you’re spending money – whether we’re talking about bills, gas and groceries, or even shopping trips to the mall – you can earn rewards. That means free money back in your pocket, at no additional expense to you. All it takes is a cash back credit card and some discipline.
Certain credit cards will give you flat-rate cash back on every purchase, no matter what you buy. Some will only offer rewards in certain spending categories, and others are a mix of the two. Either way, you can utilize both bonus offers and everyday rewards to put miles, cash back, and more back in your pocket.
The important thing with rewards is to avoid paying interest. Earning 3% back on your gas purchases isn’t very impactful if you’re also paying 15% on the balance from one month to the next.
Thou Shalt Reevaluate Cards Every So Often
If you’ve been using the same credit card since college, or even for the last ten years, it might be time to reevaluate your wallet. Based on the new credit cards offered today and even your changing spending habits, you could be missing out on amazing rewards and protections by holding onto old products.
Be sure to look at your spending each year, and how it might have changed from the last time you shopped for a new card. Align your rewards with said spending, figure out if any annual fees are worthwhile, and find a card that offers protections and benefits that you could really use (like price protection, trip protection, and even cell phone coverage).
Thou Shalt Question the Worth of Annual Fees
Speaking of annual fees: if you’re paying one, make sure it’s worthwhile. Otherwise, your credit card could be costing you money each year without offering nearly enough in return.
Of course, it’s ideal to carry credit cards that don’t charge annual fees. However, if a card offers you excellent perks (especially great cash back rewards), it could be more-than-worth a fee each year. The most important question is whether the card earns you more than it costs you, and if you could earn more using a different card.
Thou Shalt Watch for Fraud
Today’s credit card companies have many fraud protections in place, and will alert you to any suspicious activity that they notice. However, they are not perfect.
It’s imperative that you regularly scan your statements for charges that were not approved or are even fraudulent. The sooner you call attention to them, the easier it will be to get them corrected.
Thou Shalt Utilize Benefits/Perks
If you have a credit card that offers you added perks – like cell phone protection, trip protection, purchase protection, or even access to luxury features such as airport lounges – use them! They can save you hundreds of dollars a year. Using an app like Sift can help you track price changes on items you’ve purchased, so that you can request a refund from a card offering price protection. If you are buying a high-dollar item (like a television or computer), opt for the card in your wallet that offers an extended warranty.
Thou Shalt Only Spend What Thou Can Afford in Cash
Carrying, and using, a credit card can be tricky. You want to avoid digging yourself into a hole of debt at all costs, but there’s really only one rule you need to follow: don’t buy anything that you can’t afford to pay for in cash.
This will keep you from shopping sprees, unnecessary purchases, and, in the end, overwhelming credit card debt.
Thou Shalt Monitor Thy Credit Regularly
Checking your credit report each year (at a minimum), through all three credit bureaus, is a must… especially if you use credit cards. This way, you can spot inconsistencies in your reports, correct errors, and potentially head off issues with fraud.
Your credit reports are free each year, too (one copy from each bureau), so there’s no reason not to get them. If you see late payments where you didn’t pay late, incorrectly reported balances, or even accounts that you didn’t open, you can file disputes right away.
Credit cards are wonderful financial tools that open many doors and provide great perks. However, the key is in managing them wisely. By following these ten commandments, you can get the most out of your plastic while also avoiding the common pitfalls.