Credit Card Responsibility

The Mindset

The first step to learning how to use a credit card responsibly is to have the right mindset. It’s important to think of credit cards as providing a short term loan that should be paid back in a month. Keeping this in mind will help you understand the importance of only buying things you can afford to pay for that month. Credit cards can be a great convenience and even earn rewards for those that use them responsibly. When you apply for a credit card, read the terms and conditions and find out the grace period. If the grace period is 20 days, that means you have 20 days from the purchase to pay the balance in full without being charged interest. If you do currently have credit card debt, it’s also important to realize that paying the minimum is the wrong thing to do. You could be accruing interest of $17 a month while you pay your $25 minimum.

Paying Balance in Full Each Month

Using a credit card responsibly means not carrying a large balance and paying interest unnecessarily. Paying your balance in full each month shows that you understand the purpose of a credit card is convenience and the ability to pay for things later, not purchase things you can’t afford. It can be a hard temptation to avoid when you find yourself thinking, “I’ll pay it next month.” Just keep this in mind: chances are, if you don’t pay it now, you’ll have even less motivation next month.

Understand the Grace Period

The grace period of your credit card is the amount of time from the purchase that you have to pay the balance before any fees or interest is charged. The length of the grace period varies from card to card so make sure you check your terms. It’s also important to realize that the grace period doesn’t usually apply to new purchases if you already have a balance on the card.

Don’t Use Credit Cards for Everyday Purchases

Accruing debt over everyday purchases like fast food and dish soap is an awful idea. Until you have the responsibility to do this with a good rewards card and know you’ll pay it immediately, just stick to using your debit card or cash.

Don’t Buy Things You Can’t Afford

It seems obvious but many people finding themselves with credit for the first time are tempted to go out and buy that huge television they’ve been admiring. One of the first rules of using a credit card responsibly is not purchasing things you can’t afford. If you won’t have enough money to pay for the purchase within two or three months–or, preferably, during the grace period–you probably don’t have any business making the purchase in the first place.

Don’t Close an Account Without Knowing Consequences

Just because you don’t want or don’t use a credit card anymore does not mean you should close the account. The main reason is this: often, it will negatively affect your credit report and FICO score. If you close an account you’ve had for many years you will probably affect the average age of all your accounts, an important part of your credit score. You will also lower your credit limit, which will affect you negatively. That could even increase the percentage of your credit usage if you carry balances on other accounts, which is a bad thing. Lastly, don’t ever close an account that still has a balance. Doing this will lower the credit limit to zero while you still have a balance, drastically hurting your credit usage. To learn how to use a credit card responsibly, remember to always check how an account closure will affect you.

Let the Creditor Know if You Can’t Make a Payment

The worst thing you can do when you don’t have the money to make your minimum monthly payment is to just not pay. If you know ahead of time that you aren’t going to be able to make your credit card payment call your creditor immediately. You will probably be able to get the late fee waived or get an extension to make the payment. Failing completely to make your credit card payments shows that you lack responsibility and will severely affect your credit report.

Stay Within 25-30% of Your Limit

Another way to learn how to use a credit card responsibly is to stay within 25-30% of your total credit limit. For instance, if you combine all of your credit and have a total limit of $5,000, try to keep the balances below $1,300 at all times. This shows potential creditors that view your credit history that you aren’t getting in over your head and aren’t buying things you can’t afford. Having a lower balance on your credit cards is also much easier to handle as far as minimum monthly payments and ultimately paying the balances completely.

Call for a Lower Interest Rate

Many people don’t realize that it’s usually possible to negotiate a lower interest rate on credit cards in good standing. If your account has been in good standing for at least six months, and ideally has a low balance, if any, try calling your credit card company to ask for a lower interest rate. The interest rate determines how much you pay when you carry a balance on your credit card so negotiating a better deal is a great way to use a credit card responsibly.

Don’t Use One Card to Pay Another

Another incorrect way to use a credit card responsibly is to pay off the balance of one card with another. This may seem obvious but many people start down this road and end up with large amounts of debt they have no way to handle.

Do Not Keep Credit Cards in Your Wallet/Purse

Credit cards shouldn’t be used to buy everyday purchases and always having your credit cards with you in your wallet or purse will cause a large temptation to use them. If you don’t have a legitimate use for your credit card, the responsible thing to do is leave it at home.

Keep Receipts for Credit Card Purchases

Another important step to using a credit card responsibly is to keep the receipts for all credit card purchases. This allows you to compare the credit card statements you receive with the receipts, making sure all charges are correct and allowing you to dispute them if they are not.

Benefits of Responsible Credit Card Use

There are many benefits to using a credit card responsibly. To begin with, you’re building a credit history that will be with you your whole life. Your credit history, and thus your credit score, will determine the rates you get on credit cards, car loans, mortgages, and more. Responsible credit use also gives you security, such as knowing you have the means to pay for important car repairs before you have the cash. Once you learn responsible credit card use you can also qualify for and use rewards cards, which give cash back, plane tickets, merchandise and more when you use your credit card. Understanding the benefits to responsible credit card use can help you resist the temptation to rack up debt and learn to pay your credit cards in full each month.