7 Tips for Effectively Managing Credit Cards
Managing credit cards effectively and developing good spending habits are important parts of financial wellness. By following a few tips, like keeping a low credit utilization ratio, prioritizing paying on time, and paying more than the monthly minimum when possible, you can effectively manage your credit cards. You may even be able to increase your credit score over time.
How do credit cards work?
To better understand how to manage credit cards, it helps to know how they work. Credit cards provide you with a set amount of credit, called a credit limit, that you can borrow and repay as needed within the terms of the account. By using the card, you agree to repay the lender for the borrowed amount, plus any interest it accumulates. Each month, you get a monthly statement that shows your transaction history, fees, interest, the full amount you owe, and the minimum payment due.
7 tips for managing credit cards
We’ve put together these tips to help you manage your credit cards effectively:
When you make your credit card payment on time, you start to build a positive payment history. Not paying on time can result in a late fee and eventually damage your credit score. If you can, set up automatic payments and turn on payment reminders to help ensure you never miss a due date.
To avoid interest adding up, try to pay off your entire credit card balance each month. If you can't pay in full, try to at least pay more than the minimum payment to reduce interest costs.
Familiarize yourself with the terms and conditions of your credit card, including interest rates, fees, rewards, and special offers. Knowing these details can help you make informed spending decisions and avoid unexpected charges.
If you have a credit card that offers rewards, such as cashback, you might be able to apply the rewards toward your account balance — or even deposit them into a savings account.
Your credit card limit is the maximum dollar amount you can spend on your card as set by the card issuer. Try not to exceed your credit card limit, as this can negatively affect your credit score.
Bonus tip: You should try to remain below a 40% credit utilization ratio. Your credit utilization ratio is your transaction balance amount compared to the credit card limit.
Check your monthly credit card statements for accuracy. Look for any discrepancies or unauthorized charges and report them to your credit card issuer immediately.
Keep an eye on your credit card spending by setting up alerts that let you know if a transaction exceeds your defined amount. You can also set up alerts that flag potentially fraudulent spending patterns.