There is a certain thrill that comes with getting your first credit card. With a credit card, there’s no need to worry about the exact amount of money in your bank account, and spontaneous purchases are suddenly just a tap away. According to the U.S. Government Accountability Office, over 82 percent of Americans have at least one credit card and U.S. credit card balances total over $1 trillion.
The financial freedom that comes with a credit card goes hand in hand with the risk of overspending. Credit card debt is one of the hardest obstacles to overcome, yet many people let the ease of credit card use get the best of them. Whether you just received your first credit card, are planning to apply for a credit card, or are a seasoned credit card user, we can show you how to use a credit card responsibly. Here are the top 8 responsible credit card tips to keep your finances safe in Northwest Arkansas and Southwest Missouri.
Know Your Credit Score
Did you know that maintaining a good credit score saves you money? Anytime you apply for a loan, whether it’s a car loan or a mortgage, your interest rate is determined by your financial health. Many people open their first credit card with the hopes of building credit and improving their credit score. While it’s true that responsible credit card use will improve your credit score, using a credit card in the wrong way can damage your credit.
Improve your credit score by practicing these four financial habits:
- Pay your credit card bill on time each month
- Always make the minimum payment or above
- Limit the number of credit cards that you apply for each year
- Keep your credit card balances below 30 percent of your total available credit
Mark Your Calendar
Your credit card payment is due on the same day every month. Overdue payments will not only cost you money in late fees, but they also show up on your credit report. Delinquent payments will damage your credit score and may take years to fall off. Set a reminder on your phone, mark your calendar, or consider setting up automatic payments to pay your credit card bill on time each month.
Treat Your Credit Card Like Cash
Your new credit card may come with a $5,000 credit limit, but that doesn’t mean you have an extra $5,000 to spend this month. A credit card is great if you need to make purchases before payday, but make sure you’ll have the money in hand before your bill is due. Remember that your goal is to pay off your credit card in full in order to avoid high interest charges. Treat your credit card like cash and you’ll avoid the trap of compound interest.
Don’t Settle for the Minimum
Making minimum payments will keep your credit score intact, but compound interest will quickly take a toll on your financial health. It can be tempting to pay only the minimum amount due when your credit card features a low introductory interest rate. Eventually that offer will expire, and you’ll be left with a credit card balance accruing an average of 20.69 percent interest. The higher your balance, the more interest you pay, and the harder it is to dig yourself out of your credit card debt. If you can’t pay your full balance each month, pay as much as you can and avoid the bare minimum payment.
Watch Out for Fees
You shouldn’t encounter unexpected fees if you use your credit card for basic charges and pay it off in full each month. There are many credit cards that offer a $0 annual fee. If you decide to choose a rewards credit card that charges an annual fee, make sure the benefit is worth the cost. Unexpected credit card fees typically result from late payments, foreign transactions, cash advances, and balance transfers. Carefully read your credit card application to avoid any surprise fees.
Keep an Eye on Your Spending
It can be easy to mindlessly swipe your credit card and lose track of your monthly spending. Make a point of checking your balance once a week to ensure you are staying within your monthly budget. Access CSB Insights or your credit card’s spending summary to see where you’re spending your money each month. Monitoring your credit card throughout the month will also help you identify fraudulent purchases before it gets out of hand. Set up credit card alerts to let you know whenever your card is used to make a purchase.
Use Your Card Sparingly
If you are concerned about overspending with your new credit card, reserve its use for specific expenses. A credit card can boost your credit score even if it’s rarely used. If you’re trying to control your spending, save your card for a planned vacation or only at the gas station. A credit card is a safe and convenient method of payment, but it needs to fit your lifestyle. Whether you use your credit card for daily expenses or only in emergencies, remember that responsible credit card use will boost your financial wellness and not create debt.
Choose the Right Credit Card
Time for a new credit card? Choose a credit card with no annual fee and a low introductory interest rate like the CS Bank Mastercard. Stick to a single credit card as you develop responsible habits and build your credit. Once you are comfortable paying your credit card bill each month, consider adding one to two additional credit cards to your wallet. Retail store cards can provide worthwhile rewards if they come from a store where you shop often. Retail cards are available for popular stores and gas stations in Arkansas and Missouri, and online retailers. Avoid applying for store, hotel, and airline credit cards that you will only use once. The best credit card will have a low interest rate and rewards that fit your lifestyle.