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This article was last updated Sep 22, 2015, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.
Credit cards take you into a new world the moment you get hold of them. But, before you explore this new world, it’s important to be well-versed in the best credit card practices so that you can reap maximum benefits.
Here are the 10 best credit card practices that will help you optimize credit cards beautifully and have a prosperous financial future.
1. Know what you’re actually getting into. It is very easy to get tempted by lucrative credit card offers you see in ads. But remember, ads don’t give you the complete story. All the interesting tidbits are written in the terms and conditions section of the credit card agreement, so read this section carefully. Find out when you can qualify for the benefits and reward programs. Don’t forget to know everything about the fees and penalties, too.
2. Behave like a responsible credit card holder. As you probably know, credit cards allow you to charge up to a certain limit. Credit card companies also give you flexible payment options. You can pay the full amount or a fraction of the bill now, and deal with the remaining amount later.
Consumers with excellent credit always stays within his/her credit limit, and tries to pay the full amount every month. If you don’t pay the bill even after the grace period is over, you’ll be slapped with additional interest rates. This means you’ll be paying more than the actual price of the product you bought with your credit card.
3. Charge what you can afford. Charge or not to charge? This is an important question you need to ask yourself at the time of purchasing anything. It is essential to think carefully before you swipe your card. Remember, if you can’t pay the bill in full that month, the balance will roll over into the next month, which will cost you more money in interest. This will happen every time you carry a balance from month to month if you don't have a credit card offering 0% APR.
4. Maintain a 30% credit utilization ratio. Credit utilization ratio is very important since it affects your credit score directly. Consumers should always strive to keep their ratio below 30 percent for each individual card and the total balance off all your card balances combined. When you use more credit, it shows that you have a tendency to live outside of your financial means, which triggers a red flag to creditors.
5. Keep your credit cards open. Don't close your credit cards just because you can’t manage them properly. Make it your goal to retain credit cards and pay your bills regularly. This will help you build your credit history and improve credit score in the long run. If you find you simply can't keep them open for fear of getting buried in debt, close your most recently opened accounts and leave the oldest accounts open.
6. Never pay taxes with a credit card. Credit cards are meant to make your life easier, but that doesn’t mean you should use them to pay your past due taxes. If you do pay taxes with your credit card, be prepared to pay a processing fee of 2 percent. While that processing fee might not seem like a lot, it could be quite cumbersome if you owe a large sum to the IRS. There are ways to pay your taxes with credit cards responsibly, so take care in doing it the right way.
7. Get help at first sign. Not everyone can manage their money perfectly, so it’s natural to make mistakes or face trouble when paying your credit card bills. It’s happens; however, what’s not acceptable is when you stop yourself from getting help. If you face problems paying your bills on time due to financial hardships, you must explore all available repayment options. You can look into debt counseling, debt consolidation, or even explore well-known tips and programs to make saving easier, to you can put all that money to your bills.
Do not hesitate to get help; it might help you avoid a bigger financial trouble such as bankruptcy.
8. Never use plastic for your student loans. Most student loans can't be repaid via credit cards, but if you happen to have a loan with an institution that does allow it, don't do it. Credit cards come with higher interest rates and fees than student loans, so credit cards will cost you way more in the long run.
Even if you're paying with a credit card that earns you rewards, it’s still not a good deal due to transaction fees and other possible fees. Plus, some of those credit cards exclude tuition payments from earning rewards.
9. Understand your reward program. Many consumers complain that they have problems redeeming their airline miles or rewards, which is why it's important to understand the complete terms and conditions of your credit card and the rewards program offered. If you really want to sign up for a rewards program, spend some time understanding how to rack up credit card rewards and when you can redeem points. If it isn’t lucrative or too much work than you're willing to put-forth, go for a straight cash back credit card instead.
10. Look into your credit card bill. In the world where more people are shopping online, it's quite easy for thieves to steal your credit card number and make fraudulent purchases. Many consumers won’t even know about these charges unless they look at their credit card bill each month. Make it a habit to check your credit card bill every month. Inform your credit card issuer immediately if you notice any fraudulent charges.
Remember, credit card advice won't work the same for everyone, so evaluate your own personal financial situation carefully.
Collaboration Piece. Andy Masaki is a 27-year-old freelance journalist living in Oakland. Masaki works for Oak View Law Group, a leading consumer and bankruptcy law firm based in CA and operational across US. Masaki loves numbers and helping others find the right balance between frugal finances and living life to the fullest. You may find his writing samples on this blog and at Familyshare and Realmoneyanswers.