9 credit card rules to live by
These credit card dos and don’ts will help you use your cards wisely while avoiding common mistakes.
Credit cards can help you manage your money, build strong credit and earn attractive rewards. But they require careful use and monitoring, or they can lead to unwanted debt. To make the most of your credit cards, stick to these smart practices.
DO use cards to build great credit
Using credit cards responsibly can have a positive effect on your overall financial health. Consistently paying your credit card bills on time and keeping your credit utilization rate low can help you build your credit history and boost your credit score. That may help you qualify for lower interest rates on mortgages, car loans and other big purchases in the future.
DO get rewards that fit your life
Try to choose credit cards with rewards that match your lifestyle. If you love to go on trips, a travel rewards card could be right for you. If you don’t travel often, a card that lets you earn cash back on all your purchases could be a better fit and put some extra money into your pocket. Keep in mind that rewards can be a nice perk, but they’re not worth racking up unmanageable debt. If you aren’t sure you can pay off your balance every month, consider a credit card with a lower APR instead of rewards. Find out more about lower interest rate credit cards from Bank of America.
DON’T live beyond your means
Having a credit card doesn’t mean you should start spending more than you can pay off quickly. Little impulse buys can add up over time and can lead to some pretty hefty bills—plus interest charges, if you carry a balance. If you don’t really need something, you may want to think twice before buying it.
DO pay on time
Even if you pay just a few days late, you’ll likely get charged a late payment fee. Plus, late payments can show up on your credit report. And while it varies on a case-by-case basis, one 30-day late payment could result in a 100-point drop in your credit score even if you never missed a payment before, according to Equifax. So stay on top of your monthly bill to protect your credit score and avoid an unnecessary blemish on your record.
DON’T max out your account
If you’re close to hitting your credit limit, your credit utilization rate—the ratio of your total balance to your total available credit—is likely to hurt your credit score. Experts recommend you use no more than 30 percent of your available credit. Consider setting specific goals for tackling your credit card debt sooner rather than later.
DON’T apply for new credit cards too often
Every time you apply for new credit, the lender will check your credit report. If several inquiries happen around the same time, it can hurt your credit score because it may appear to lenders that you need a lot of credit all at once. So, if you’re tempted to sign up for a new store credit card in order to get a discount on your purchase, make sure it’s really worth it.
DO pay more than the minimum
If you have a balance on your credit card and make only the minimum payment, you face mounting interest charges. For example, say you use your credit card to buy a new computer for $1,000 and then only make minimum payments. On a card with a 15.8 percent APR,1 it could take you more than five years and cost over $350 in interest alone—if you don’t charge anything else along the way—to get the balance back to zero. Learn how to save on interest by paying more than minimum.
DON’T close accounts just because you aren’t using them
American credit card owners hold 2.3 cards per person on average, according to Experian. You might be tempted to close accounts you pay off completely, but think through that decision carefully. One of the factors for your credit score is the length of your credit history. It’s often good to have accounts that have been open for a long time, especially if you’ve handled them responsibly. Your credit utilization rate is another important factor in your credit score, and accounts you don’t use much can help keep your credit utilization rate low.