A credit card is not like a debit card. When you make a purchase using a credit card, you are effectively borrowing money from the bank to fund it. This borrowed money must be paid back. Therefore, you should never overspend when it comes to your credit card. Charging more than you can afford is a bad habit that can have serious financial consequences, such as insurmountable debt, hefty interest fees, and a low credit score. To help you avoid the (expensive) pitfalls of having a credit card, we’ve put together a list of tips for using your credit card responsibly.
1. Pay off your balance in full each month
Our first tip is to pay off your balance in full every month. The money you owe to your credit card issuer is referred to as your balance. Ideally, your balance should be paid in full by the due date each month. If you fail to pay by the due date, you’ll be charged interest, which adds up quickly.
Beyond helping you avoid interest fees, paying off your balance each month shows lenders that you are financially responsible. In turn, you will have a higher credit score, which will make them more likely to approve you for a future loan (e.g. a car loan or mortgage loan).
In contrast, regularly making late payments or failing to pay altogether can have serious consequences, like an increased interest rate, lowered credit score, cancellation of your credit card balance insurance, or losing out on a promotional offer. Your financial institution could even opt to cancel your credit card outright. Therefore, credit card holders should always aim to pay off their balances in full. If this isn’t possible, try to pay the minimum amount you owe.
2. Review your credit card statement for errors
Our second tip for using your credit card responsibly is to check your credit card statements for errors. Your financial institution will likely issue a monthly credit card statement. Sometimes they are sent in the mail and other times online. Whichever way you receive yours, be sure to review it carefully to ensure the information it contains is accurate. If you’re worried you’ll forget about purchases charged to your card, try to keep all receipts in your wallet to refer back to. If you notice an error, phone your bank or other financial institution and report it as soon as possible.
3. Keep your personal information confidential
Another important tip for responsible credit card use is to keep your personal information confidential. This means keeping the following information to yourself: your PIN, credit card number, and credit card CVV number. Of course, we also recommend storing your credit card in a safe place where others can’t access it.
4. Take note of the warning signs
To ensure you don’t fall into the overspending trap, we’ve put together a list of warning signs that you’re spending beyond your means (and therefore using your credit card irresponsibly). If you notice any of the following signs, it might be time to reassess your credit card usage:
- Your credit card balance only seems to increase
- You’re using all of your available credit each month
- Your credit card balance is carrying over from month to month
- You can only afford to make the minimum payment on your credit card each month or you often fail to make payments altogether
- You frequently take out cash advances with your credit card
