How to Use Credit Cards Responsibly: 5 Things to Do

Using a personal credit card can seem complicated, especially if you’re working to build credit. It’s a balance between spending enough to build your credit history, but not overspending and going into debt. Challenging? Sure, but definitely not impossible. Here are our five tips for using your credit card responsibly. 

1. Read the fine print.

When applying for a credit card, make sure you understand the terms of the card and your account. If you have any questions when applying, or if the terms are unclear, we’re happy to help you! We’ll work with your needs and budget to help you decide which credit card is right for you.

2. Always pay on time.

If you take anything away from this article, let it be this: always, always, always make your payments on time. It’s the No. 1 way to build credit history and boost your score. According to Experian, payment history attributes to 35% of your FICO score (the score used by roughly 9 out of 10 lenders). Late or missed payments can negatively affect your score and lead to late fees.

3. Know your limits.

When first applying for a credit card, many people get excited at the idea of buying things with cash they don’t have yet. But a credit card is not free money, and overspending can lead to debt. But at the same time, your credit history needs you to make purchases so you can pay them off. How do you strike the balance?

Our suggestion: use your credit card for necessities—things like groceries or gas—and pay the balance off as soon as you can. Avoid using your credit card for larger bills or purchases, such as rent. It’s the same principle as overspending: too much on your personal credit card at once can lead to debt, late fees, and other penalties.

4. Take advantage of rewards.

When you spend money with your credit card, you can earn rewards for your purchases. You do this by earning points on purchases. Each credit card will offer different point values for different types of purchases—some offer more points for gas, for example, while others offer points for travel purchases. If you keep your balance low and pay it off each month, the rewards can be a great perk.
There are three main types of rewards:

• Cash back, where you receive cash rewards for specific purchases. These can be in the form of checks, direct deposits, or statement credits.
• Transferable points and rewards, where points can be used for multiple items. These might include retail purchases, gym memberships, or travel expenses. Some cards will offer cash-back options as a transferable point reward in addition to these perks as well.
• Airline and/or hotel points and miles, where credit cards partner with airline or hotel brands and offer discounted hotel stays, air miles, or other travel expenses. If your family are frequent vacationers, or if you often travel for work, a credit card with these rewards might be beneficial for you.

5. Have more than one card.

It may sound counterintuitive to have multiple credit cards, but it’s actually a great way to build your credit score. That’s because another important aspect of your credit score is credit utilization ratio, which calculates how much you currently owe versus how much credit you have.

For example, if you have two personal credit cards with a total of $20,000 in credit, and one card has a $2,000 balance while the other has 0, your credit utilization ratio is 10%. Keeping your ratio below 30% is ideal, and one way to do that is with multiple credit cards.

For some people, two or three personal credit cards will be enough. But if you’re a business owner (even if your business is a side hustle), applying for a business credit card can help keep your personal and professional finances separate. 

Additionally, the card helps build business credit. This is separate from your personal credit score, and it illustrates how responsible you are with business debts to potential lenders. This Forbes article goes more in depth about business credit cards. 

And just like with personal credit cards, we’re happy to help you select the right one for you.

Applying for a credit card has never been simpler! Start your application today.