There Is Nothing Wrong With Credit Cards – You’re Just Using Them Wrong

It should go without saying that the most important thing you need to do with a credit card is use it responsibly. If you don’t, the consequences can be terrible, including debt collectors and years of difficulty purchasing a car or home without a co-signer. 

The good news is that there isn’t anything really wrong with credit cards as a financial tool. Instead, any issues with credit cards generally stem from a lack of impulse control, not following a budget, and overspending without thinking through the consequences. 

How to Use Responsibly

What’s most interesting about using a credit card properly is that the credit card companies provide tips and tricks on their websites. While they make billions from fees, the companies also proactively look to help ensure you don’t get over your head with debt and know all about the perks they offer. 

Paying Off Your Balance

Arguably the single most important way to use a credit card is to pay off your balance every month. Not only does this look great on your credit report, but it also helps you avoid any interest that can accrue if you carry a balance, and rest assured carrying interest month-to-month can be trouble. 

Better yet, if you can pay off your balance every month, this is a good sign that you are spending responsibly and spending less than your budget allows you to purchase every month. Anytime you pay off a balance, you’re also likely avoiding any potential fees that may be incurred if you carry a balance. 

More Than The Minimum

If you cannot pay off the balance every month, potentially because a considerable medical expense has popped up, that’s okay. Life happens, and we all have to navigate as best as we can. However, if paying off the balance in full isn’t an option, at the very least, ensure you are paying more than the minimum payment. 

The last thing you want to do is miss a payment, but paying off just the minimum is almost as bad. If all you can manage is the minimum, there is a good chance you’ll owe significantly more next month as interest accrues. This means paying more than the minimum is the best hope to reduce future interest owed. 

Set Up Account Alerts

Setting up account alerts is another important way to ensure your credit cards are used responsibly. Every credit card company and bank offers different alert options to its customers, and you should activate as many as you can. This would include reminders for payment due dates, when a payment is posted, and perhaps most importantly, whenever you might be approaching your credit limit. 

Separately, you should also set up and utilize transaction alerts to know when the card is being used. This will help protect against fraud and let you know whenever a purchase happens, if the card is declined, or if you make a cash advance withdrawal. 

The hope is that these alerts can combine to make you aware of everything happening with your credit card. The more aware you are, the more responsible you will become. 

Take Advantage Of Rewards

One of the biggest reasons to use a credit card, any credit card, is the variety of rewards programs available. The two most prominent reward types are cash-back and miles, both of which can be equally attractive to potential credit card users. 

The hope is that if you have a strong rewards benefit, like 1.5% or 2% cash-back on every purchase, you’ll be more likely to use the credit card as often as possible. Of course, you still need to be responsible when using the card, but it’s hard to ignore “free money” that can be earned with cash-back rewards.  

The same goes for credit cards that help you earn miles you can later turn in and use for free flights, hotels, car rentals, or even a cruise. Credit card rewards have some serious advantages, and people who don’t take advantage of them are missing out. 

Common Credit Card Mistakes

Twisting things around from how to use responsibly to common mistakes, there are a handful of credit card mistakes people should carefully avoid. 

Maxing Out Your Card

Of all the credit card mistakes you can make, this is the worst. Anytime you use more than 30% of your available credit balance, it can negatively impact your credit score, especially if you don’t pay off the balance in full every month. 

The bottom line here is that if you are maxing out a credit card for any reason short of an emergency, there is a good chance you need to reconsider your spending habits. What’s worse is that it could also mean that your spending is just out of control and you’ll be accruing a ton of interest if you don’t pay off the balance quickly. 

Set yourself a (very) strict budget and avoid spending on anything but absolute necessities until the balance is zero. 

Closing Unused Cards

Unfortunately, too many people think closing a credit card doesn’t hurt your credit score. The reality is that it absolutely can and will harm your credit score. Anytime a credit card is closed, it reduces your available credit, impacting your credit utilization rate. 

If the card you canceled or have canceled was an older card you had for years, it can also lower the average age of your credit cards, which is yet another thing that can impact your credit score. Ultimately, leaving it open with a zero balance is better unless the card has a fee. 

Common Myths About Credit Cards

One final thing to note about credit cards that might help win over someone who has been on the fence is that there are many common myths about them. One such myth is that having multiple credit cards is bad for your credit, which is absolutely untrue. In fact, the opposite is true. 

Another big myth that scares many potential credit card users is that even missing one payment immediately affects a credit score. This is universally untrue, as most credit card companies won’t report anything to a credit bureau until 30 days after the billing date. 

Lastly, carrying a balance does not help build your credit. There’s no background on how this myth started, but the best way to handle a credit card is to pay off the balance as fast as possible. 

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