10 Credit Card Best Practices You Need to Follow
Credit cards can be an extremely powerful tool if you follow these 10 credit card best practices
There are a lot of contradicting personal finance these days.
Popular “personal finance experts” like Dave Ramsey oppose credit cards and tell people to avoid them at all costs.
Although there is some validity to these beliefs, you can eliminate your worries as long as you follow a couple of best practices.
If you follow these 10 simple credit card rules, I promise you you’ll never fall into credit card debt AND you’ll discover excellent benefits you never knew existed.
Understanding the Dangers of Credit Cards
IF not used correctly, credit cards indeed can be dangerous and lead to financial ruin.
Cash rewards are not worth it if there is a possibility of you overspending your money and getting stuck in debt due to high-interest rates.
If you already have consumer debt due to impulse buying habits, do everything you can to get rid of your credit card debt. This could include opting for a cash-based lifestyle and using cash a debit card for all purchases.
Whatever you do, don’t let the convenience and ease of using a credit card can lead you to make impulse purchases and rack up debt.
Other arguments are that having credit cards makes you a target for identity theft and that any rewards are not worth the risk.
Although there indeed is a risk of identity theft and fraud, there are tools that will allow you to monitor your card activity and avoid significant financial losses.
I believe the other risks of credit cards are too small to be considered a reason to avoid credit cards completely.
Benefits of using credit cards
1. Convenience
Credit cards allow you to make purchases without having to carry cash or checks with you. You can make purchases online or over the phone without having to leave your home. Not carrying around wads of cash also decreases your chances of getting robbed.
2. Building Credit
Using a credit card responsibly can help you build your credit score, which can be important when applying for loans, renting an apartment, or even getting a job. A good credit score shows that you are responsible with credit and can help you get approved for better interest rates and credit limits.
3. Rewards
Many credit cards offer rewards programs that can earn you points, cash back, or other benefits for using the card. These rewards can add up over time and provide valuable benefits to cardholders, such as free flights, free hotel upgrades, etc.
4. Protection
Credit cards often come with built-in protections, such as fraud monitoring and purchase protection, which can help protect you against fraudulent purchases or unauthorized use of your card. A lot of cards also have travel protection. I’ve had flight delays and cancelations that could have lost me hundreds of dollars if I didn’t use a credit card to purchase my tickets.
5. Budgeting
Using a credit card responsibly can also help you manage your budget. I review my credit card transactions at the end of each month as a way to track and monitor my purchases. It is much easier to track your transactions through your bank statements or by using a tracking app like Mint rather than sifting through a bunch of receipts. Just make sure to pay off your balance in full each month, you can ensure that you are only spending what you can afford.
Credit Card Best Practices
Here are the 10 credit card best practices to help you manage your credit card usage effectively.
1. Don’t spend more than you have
Avoid this by treating your credit card like a debit card. I also found that creating budgets for myself allows me to keep my priorities straight and only spend money on the things I need instead of mindlessly overspending.
2. Understand the factors affecting your credit score
There are a couple of factors affecting your credit score that you should look out for.
One of the most common mistakes I see is when people close their oldest accounts without understanding that credit age is a huge contributor to their credit score. Closing an old account can decrease your credit age significantly!
3. Pay your balance in full every month
Pay your balance in full every month: This helps you avoid accumulating interest charges and ensures you don’t carry debt from month to month
4. Set up automatic payments
Set up automatic payments: To avoid missing payments, set up automatic payments to pay at least the minimum amount due on your credit card each month.
5. Keep your credit utilization low
Aim to use no more than 30% of your available credit, as this can help boost your credit score and signal to lenders that you’re a responsible borrower
6. Monitor your credit card activity
Keep an eye on your credit card activity regularly to ensure that all charges are legitimate and to identify any fraudulent activity
7. Avoid cash advances
Cash advances on your credit card often come with high fees and interest rates, so it’s best to avoid them if possible
8. Avoid impulse purchases
Before making a purchase, consider whether you need it and whether you can afford it without carrying a balance on your credit card
9. Choose a card with rewards that fit your lifestyle
If you’re going to use a credit card, make sure to choose one that offers rewards that align with your spending habits and can help you save money in the long run
10. Keep your credit card information safe
Be sure to keep your credit card information safe by only using it on secure websites and by not sharing your card number with others.
Use Your Card Responsibly, and Reap The Rewards
By following these best practices, you can use your credit card responsibly and avoid getting into debt or damaging your credit score.
Once you have a good grasp of how to use credit cards, you can get into the world of credit card churning and travel hacking to get thousands of dollars of benefits. There are credit cards for anyone, whether you’re a foodie, a travel enthusiast, or love going to movies and shows.