Managing credit cards well is not a skill everyone excels at. The good news is that learning effective credit card management is relatively easy once you know the basics. Whether you’re a beginner or have some experience with credit cards, we’ve compiled ways you can help develop and improve your credit habits.
Here are the 10 credit card management tips we’ll cover:
- Prioritize paying on time.
- Try to pay more than the minimum each month.
- Create a budget and stick to it.
- Review your credit card statement.
- Develop good spending habits.
- Review your credit report.
- Maintain a low credit utilization ratio.
- Use cash back or rewards.
- Consolidate debt.
- Create an emergency fund.
How to manage your credit card effectively
Credit cards are classified as unsecured debt, so many consumers have a tendency to think of them as “free” money. They’re not. There’s a bill to pay each month and a balance that can grow with interest charges and fees. In part, effective credit card management comes down to what you do every day and each month. Some steps, however, only need to be taken once in a while to favorably impact your financial health.
Prioritize paying on time
When you make your credit card payment on time, you take one step toward building a positive payment history. Not paying on time may result in a late fee and eventually damage your credit score. Credit card companies report late payments to the credit bureaus. Just as paying on time contributes to a positive payment history, a late payment is a negative mark in your payment history.
Try to pay more than the minimum each month
Paying the minimum amount due on your credit card will cover your interest charges, fees and a small percentage of your balance. However, this is not an effective credit card management strategy for a few reasons. When you continuously make only your minimum payment, your balance may continue building and accruing interest. Paying off your entire balance each month could ensure you pay no interest altogether.
Create a budget and stick to it
Setting and following a budget can many areas of your financial health, and budgets don’t have to be very complex. In general, you’ll simply calculate your earnings, bills, savings and spending. The budget you create for yourself will clarify exactly how much money you can spend relative to your income.
If you need help creating a budget, consider using a budgeting worksheet (PDF).
Review your credit card statement
Reviewing each credit card statement can help you maintain your budget each month because it helps you track your expenses. Perhaps the better reason to check your statement each month is to make sure all your listed transactions are legitimate. This can help you detect credit card fraud or identity theft. If you spot anything unfamiliar, call your credit card issuer immediately to dispute the charges.