Credit card usage has the potential to be a positive tool for credit building or a method of amassing devastating debt. By understanding how to use a credit card appropriately, you avoid serious problems with your credit report, credit score and bank balance.
Use in Moderation
A credit card works effectively as a financial tool when you need it, such as when reserving a hotel room or making an online purchase. When you use your credit card regularly and within your budget, you show responsible and prudent spending that fits your finances. The credit card issuer reports your pattern of responsible behavior to the credit bureaus, which has a positive impact on your credit score.
Paying Balances in Full
For optimal credit benefit and to fit the profile of appropriate credit card use, pay your credit card balance in full each month. Paying a balance in full demonstrates that you are spending within your budget because you can afford the payment. Paying down your balance to zero also avoids costly interest charges that accrue on unpaid balances.
Credit cards can seem like “magic money” if you’re not careful. With that plastic in your wallet, suddenly you have the ability to hit the electronics store for a spending spree. Using a credit card to buy things you want immediately without saving for them can be a dangerous and inappropriate way to manage your finances. When the credit card bill comes due at the end of the billing period, it’s likely that you won’t have the funds to pay the balance in full, which sets in motion the cycle of interest charges. Adding interest charges to the original cost of the item pushes up the price significantly, especially if you pay these interest charges for months.
Lack of Financial Management
Making a late payment usually results in a late fee that is tacked to your account, which is an expensive lesson in punctuality. A late payment can also serve as a red flag to creditors that you aren’t managing your finances responsibly or effectively. Credit card issuers have different policies regarding the when and how of reporting late payments to the credit bureaus. Some wait to report late payments for 30 days and others report late payments more quickly. The bottom line is that making late payments on your credit card accounts is risky because of the potential for negative information reaching your credit report. Negative information stays on a credit report for seven years.
- Consumer Jungle: The Good, the Bad and the Ugly of Credit Cards
- BankRate: Smart Ways to Use Credit Cards
- CreditCards.com: 10 Ways Students Can Build Good Credit
- DirectLendingSolutions.com: Using Credit Cards Properly
- Experian: Day Late Payment Probably Won’t Show on Credit Report
- USA.gov: Negative Information in Your Credit Report
- Debt.org. "Revolving Credit: What It Is & How It Works." Accessed May 17, 2020.
- Federal Trade Commission. "Using a Credit Card." Accessed May 17, 2020.
- Experian. "What Are the Different Types of Credit Cards?" Accessed May 17, 2020.
- Experian. "What is a Good Credit Score?" Accessed May 17, 2020.
- Consumer Financial Protection Bureau. "How to Find the Best Credit Card." Accessed May 17, 2020.
- Experian. "What is a Cash Advance?" Accessed May 17, 2020.
- USA.gov. "Credit Cards." Accessed May 17, 2020.
- Experian. "How to Avoid Foreign Transaction Fees." May 17, 2020.
- Experian. "Balance Transfer Credit Cards." Accessed May 17, 2020.
- Experian. "What Is APR and How Does It Affect Me?" Accessed May 17, 2020.
- Experian. "What Is a Rewards Credit Card?" Accessed May 17, 2020.
- Experian. "Going Over the Limit on Your Credit Card." Accessed May 17, 2020.
- Experian. "Will Closing a Credit Card Hurt Your Credit?" Accessed May 17, 2020.
- Federal Trade Commission. "Protecting Against Credit Card Fraud." Accessed May 17, 2020.
Kathryn Hatter is a veteran home-school educator, as well as an accomplished gardener, quilter, crocheter, cook, decorator and digital graphics creator. As a regular contributor to Natural News, many of Hatter's Internet publications focus on natural health and parenting. Hatter has also had publication on home improvement websites such as Redbeacon.