Understand the terms of your credit card accounts, and be responsible with them. Plan to pay off your credit card balances in full every month. If you can't, limit your use of credit cards. Follow these rules for responsible credit card use.
- Study the credit card agreement
Take a look at the small print on the agreement before you open an account, or read the reverse side of your monthly statement. Learn about the grace period for payments, annual fees, cash advance fees, finance charges, and annual percentage rate (APR). This will help you manage your credit card account with the lowest cost to you. If you plan to carry a balance on your account, shop around for the lowest annual percentage rate (APR), and the best terms.
- Use credit wisely - follow the 20/10 rule
Never borrow more than 20% of your annual after-tax income. Keep your monthly debt payments to less than 10% of your monthly after-tax income. Keep track of your purchases and don't buy expensive and unnecessary impulse items.
- Make your payments on time
This is the best way to increase your credit score and avoid fees.
- Pay off your balance monthly or pay more than the minimum payment
You can avoid interest charges by paying off your total balance every month. If you are unable to pay it off in one payment, try to pay it off over a few months. Lenders are less likely to increase interest rates on borrowers who pay more than the minimum.
- Do not exceed your credit card limit
Exceeding your credit limit is usually considered a violation of your account agreement and may result in additional fees, penalties, or the freezing or cancellation of your account.
- Don't use cash advance checks
Many credit card lenders will send you checks in the mail. In most cases, when you use these checks, it is considered a cash advance. This type of borrowing has a higher interest rate than credit card purchases. If you do get these checks in the mail, shred them immediately, or put them in a secure place to use only in emergencies.
- Use only a few credit cards
Too many credit lines can decrease your credit score because lenders will assume that you will go too deeply into debt. Limit your credit card accounts to a few that offer the lowest rates and fees.
- Keep in touch with your lender
Contact your lender if you cannot make a payment on time for any reason. They might be able to arrange special payment options that help you avoid credit problems. If you change your name, address, or job, notify your lending institution immediately.
- Use Balance Transfers Carefully
If your wallet is full of plastic and your mail is full of bills, it might be time to consolidate some of your credit card debt to one lower-rate account. Consolidation can save you money over time if you switch to an account with a lower interest rate and lower fees. Make sure you read the terms and conditions carefully.
FAQs
Use credit wisely - follow the 20/10 rule
Never borrow more than 20% of your annual after-tax income. Keep your monthly debt payments to less than 10% of your monthly after-tax income. Keep track of your purchases and don't buy expensive and unnecessary impulse items.
What is the biggest mistake you can make when using a credit card? ›
Not paying on time
Sometimes, schedules are busy and budgets are tight. But it's best to always pay at least part of your credit card bill on time. Missing or late credit card payments can have a big impact on your credit score and fees.
What is the number 1 rule of using credit cards? ›
Pay your balance every month
Paying the balance in full has great benefits. If you wait to pay the balance or only make the minimum payment it accrues interest. If you let this continue it can potentially get out of hand and lead to debt. Missing a payment can not only accrue interest but hurt your credit score.
What does Robert Kiyosaki say about credit cards? ›
The Kiyosaki team suggested you start with the credit card debt that will be paid back the quickest, or the debt with the lowest month number (the number of months it will take to pay back the debt). Then you can pay off the others one by one until you tackle the one with the highest month number.
What is the main rule for using credit cards? ›
Pay off your balance every month.
Avoid paying interest on your credit card purchases by paying the full balance each billing cycle. 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.
What is the golden rule of credit cards? ›
The golden rule of credit card usage is to do everything you can to pay off your entire balance each month. If you can do this, you won't be charged any interest.
What is the number one credit killing mistake? ›
Paying bills late is by far the biggest drag on your credit. Payment history determines 35% of your FICO score, and for good reason. If someone has failed to pay their bills on time in the past, they will probably continue to do so.
How to outsmart your credit card? ›
10 tips for effective credit card management
- Prioritize paying on time.
- Try to pay more than the minimum each month.
- Create a budget and stick to it.
- Review your credit card statement.
- Develop good spending habits.
- Review your credit report.
- Maintain a low credit utilization ratio.
- Use cash back or rewards.
- Getting into credit card debt. If you have the wrong attitude about credit cards, it could be easy to borrow more than you can afford to pay back. ...
- Missing your credit card payments. ...
- Carrying a balance and incurring heavy interest charges. ...
- Applying for too many new credit cards at once. ...
- Using too much of your credit limit.
The 2/3/4 rule: According to this rule, applicants are limited to two new cards in a 30-day period, three new cards in a 12-month period and four new cards in a 24-month period. The six-month or one-year rule: Some issuers may only let borrowers open a new credit card account once every six months or once a year.
Credit Damage: Misusing credit cards can severely impact your credit history, as reflected in your credit report. To mitigate this credit risk, timely payments and responsible credit line management are essential.
What does Warren Buffett say about credit card? ›
Because they pave the way for high-interest debt accumulation, investing mogul and billionaire Warren Buffett is generally against credit cards and advocates for spending in cash as much as possible.
What credit card do the richest people use? ›
In a world where wealth and status are often interlinked, the black credit card stands as a pinnacle of fiscal prestige. Embodied by the illustrious Centurion® Card from American Express, colloquially known as the 'Amex Black Card', these cards are more than a payment method ᅳ they're a statement.
Do millionaires use credit or debit? ›
They're not liable for fraudulent charges
One of the reasons why millionaires use credit cards rather than cash or debit is because of the protection against fraud they provide. If a credit card is lost or stolen, your maximum liability for unauthorized purchases is $50.
How to use the credit card wisely? ›
8 Tips on How to Use a Credit Card Wisely
- Know your credit limit. ...
- Keep track of your credit report. ...
- Choose a rewarding credit card. ...
- Time your purchases. ...
- Pay your credit card bill on time. ...
- Read the terms and conditions thoroughly. ...
- Never exhaust your credit limit. ...
- Use your card at trusted merchants.
You can make sure that you're using your credit card responsibly by following these five steps:
- Understand the fees and terms.
- Always pay your credit card bill on time.
- Pay more than the minimum.
- Keep credit card balances low.
- Set up account alerts.
The 15/3 rule, a trending credit card repayment method, suggests paying your credit card bill in two payments—both 15 days and 3 days before your payment due date.
What's the first rule of using your credit card the right way? ›
1: Always pay your bill on time. Paying your bill on time and in full will help you avoid interest charges, late fees and poor credit scores. If you can't afford to pay your bill in full right away, make sure you at least make the minimum payment on time.
