How to Use Your Credit Card Wisely [Guide]

Credit cards are powerful tools for building credit and earning rewards when used wisely. However, these seemingly innocent pieces of plastic can also lead to significant debt if not handled with care. 

With the proper knowledge and spending discipline, you can turn your card into a practical asset instead of a financial burden. Read on to discover eleven essential tips for intelligently using your credit card.

How Credit Cards Work

Understanding how a credit card works is integral to responsible use. When you make a purchase, you're borrowing money from the issuer (e.g., Visa). You will need to pay back a portion of the money every month. If you fail to pay the entire balance, the financial institution charges interest on the remaining amount.   

Some cards let you take out cash for a fee, known as a cash advance. Every card has a credit limit, which is the maximum money you can borrow. You can use your card until you reach this limit. The remaining amount you can borrow is your available credit. After you pay off some of the debt, your available credit increases, allowing you to borrow again.

11 Do’s and Don’t of Credit Cards 

Navigating the world of credit cards can seem daunting, but when used responsibly, they can be powerful financial tools. Let's dive into the eleven “do’s and don'ts” of credit cards to manage your spending and avoid debt.

1. Do: Pay on Time and in Full to Boost Credit

Consider putting your regular expenses (e.g., cell phone bill or Netflix subscription) on your card to help establish and build credit. Making payments on time and in full every month creates an excellent repayment history.  

Consistently paying your card balance in full monthly is a proactive credit-building strategy. It sends a positive signal to creditors about your ability to manage debt effectively. Your payment history makes up 35% of your FICO score, one of the most significant factors lenders use to determine creditworthiness.

2. Don’t: Spend Outside of Your Means

The golden rule of credit card use is only to make purchases you can afford. Never charge more on your card than you can pay back in full each month since interest can quickly snowball. Even if you can’t pay off your full balance, always make at least the minimum payment by the due date.

Creating a practical monthly budget helps avoid hard-to-break debt cycles. Consider setting up automatic monthly payments, because even one missed payment can damage your credit score and bring on additional fees. 

3. Do: Keep a Low Balance

Keeping a low balance can significantly improve your credit, whether you’re just starting to build credit or you’re trying to rebuild it with good habits. 

But be mindful of your credit utilization, which is the amount you owe as a percentage of your available credit. Aim to keep your utilization 30% or lower, as higher usage could lead to missed payments. To keep your utilization amount low, paying a couple of times a month might be better than waiting for your statement to arrive and paying the entire balance at once.

Also keep in mind that when swiping a card rather than handing over cash, it can be easy to lose track of how much you have spent. Make it a habit to check your spending weekly to help you stay within the advised credit limit usage.

4. Do: Understand Interest

APR, which stands for the annual percentage rate, is the annual cost of borrowing money with a credit card. It's the interest rate you pay on charges you don't pay off within a certain amount of time.

You can avoid interest charges by paying off your full statement balance each month. While making minimum payments may feel more financially viable in the short term, accumulating interest can make it challenging to pay down the debt in the long term.

5. Don’t: “Shop for More Credit”

Continually applying for new credit cards can damage your credit score, as each application triggers a hard inquiry into your credit history. Instead of seeking more credit, focus on effectively managing what you already have. Demonstrating responsible credit behavior over time can also prompt your existing lenders to increase your credit limit.

6. Do: Monitor Statements Regularly

It's critical to check your monthly statements regularly. This lets you track your spending and helps you spot any incorrect or fraudulent charges quickly. If you notice any discrepancies, dispute them immediately with your credit card company. 

7. Do: Practice Card Minimalism

Less is often more when it comes to credit cards. Juggling multiple accounts can complicate financial management and increase the potential for debt accumulation. Aim to streamline your wallet by choosing one or two cards that best align with your financial needs and lifestyle. This simpler approach promotes responsible spending and easier tracking of your financial activities.

8. Do: Pay Down the Highest Interest Balances First

When addressing multiple credit card balances, a strategic approach can save you significant money on interest payments. Prioritize paying off the one with the highest interest rate first while making minimum payments on the others. This method, known as the avalanche approach, helps reduce the total interest accrued and speeds up your journey to being debt-free.

9. Do: Watch Out for Fees

Credit cards sometimes come with various fees, including annual and late payment fees, foreign transaction fees, and cash advances. Knowing these charges can help you avoid unnecessary expenses and keep your overall costs manageable.

In an ideal scenario, choose a card with minimal fees that aligns with your spending habits. For example, if you travel often, look for a card with no foreign transaction fees. Effective fee management contributes significantly to keeping your overall credit costs in check.

Additionally, try to avoid cash advances unless in an emergency. These transactions come with steep fees and sky-high interest rates that can quickly multiply the amount owed. Cash advances may seem helpful in tough times, but their high rates and fees can lead to serious debt.

A big advantage of having a Listerhill credit card, however, is that we do not charge an annual fee, cash advance fee, or balance transfer fee on our cards. 

10. Do: Set Up Alerts

Many credit card companies allow you to set up alerts about large purchases, approaching your limit, or payment due dates. These notifications can keep your spending in check, prevent late payments, and proactively warn you of unauthorized card use.

If you notice suspicious or fraudulent transactions, report them to your card issuer immediately. Staying on top of your statement helps detect problems early before they escalate. You can also closely track spending patterns and adjust your habits as needed.

11. Do: Take Advantage of Rewards

Rewards programs can be a goldmine of value if used strategically. From cash back to travel miles, these rewards can enhance your spending power or offer a means of saving. It's essential to balance reward acquisition with responsible spending—so make these programs work for you, not against you.

Partner With Listerhill for Financial Guidance

At Listerhill Credit Union, we offer personalized guidance from financial experts to assist with borrowing decisions and money management. We can help you regain control over your spending, reduce reliance on credit, and progress toward financial goals. 

Becoming a member provides you with the education, tools, and affordable credit options to help you build and protect your finances over time. We aim to provide each member with personalized service to ensure they meet or exceed their financial goals.

Ready to open a credit card? Click to discover our card options and benefits.

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If you find yourself burdened by credit card debt, there is hope. Read our guide below on how to pay down your balance intelligently.

Learn More About How to Pay Off Credit Card Debt Effectively