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7 Credit card tips for smart users
Used responsibly, a credit card can be a very helpful financial tool. Making consistent, on-time payments can help boost your credit rating, and some cards offer rewards for purchases or even a 0% interest rate for a short period of time on any money transferred to that account.
But if your credit spending gets out of control, monthly payments and accumulated interest can become a problem. Follow these credit card tips to avoid common problems:
- Pay off your balance every month. Avoid paying interest on your credit card purchases by paying the full balance each month. 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.
- 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 you can to avoid interest charges.
- 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, a higher interest rate and a negative mark on your credit score.
- 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.
- 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.
- 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 credit card limit is $1,000 you should keep your balance under $300. But the ratio applies to the sum all of your cards – so if one credit card has a $3,000 limit and 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.
- Protect yourself from credit card fraud. While there is no foolproof way to prevent all instances of credit card fraud and theft, understanding and adopting a few best practices can help reduce your risk.
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1 By paying off your full balance on purchases each billing cycle, you’ll never be charged any interest on those balances. However, this may not be true for balance transfers and cash advances. Those sometimes start accruing interest from the date of the charge. Be sure to read your cardholder agreement – or the fine print on your monthly statement – to know how your lender calculates interest for these charges.