Managing credit cards well is not a skill that everyone is good at. The good news is that once you understand the basics, learning effective credit card management is relatively easy. Whether you’re a beginner or have some experience with credit cards, we’ve put together some ways to help you develop and improve your credit habits.
Here are 10 credit card management tips we’ll cover:
Make it a priority to pay on time.
Try to pay more than the minimum each month.
Set a budget and stick to it.
Review your credit card statements.
Get into a good spending habit.
Review your credit report.
Keep your credit utilization low.
Use cash back or rewards.
Consolidate your debts.
Set up an emergency fund.
How to manage your credit cards effectively
Credit cards are classified as unsecured debt, so many consumers tend to think of them as “free” money. But that’s not the case. There is a bill to pay every month, and the balance increases with interest and fees. In part, effective credit card management comes down to what you do every day and every month. However, there are some steps that only need to be taken once in a while to have a beneficial impact on your financial health.
Prioritize on-time payments
When you make credit card payments on time, you’re taking a step toward establishing a good payment history. Not making payments on time can result in late fees and ultimately hurt your credit score. Credit card companies report late payments to the credit bureaus. Just as paying on time contributes to a positive payment history, late payments are a negative marker in your payment history.
Try to pay more than the minimum each month
Paying the minimum amount due on your credit card will cover a small percentage of your interest charges, fees and balances. However, for some reason, this is not an effective credit card management strategy. When you consistently make only the minimum payment, your balance may continue to grow and incur interest. Paying off your entire balance each month will ensure that you pay no interest at all.
Set a budget and stick to it
Creating and sticking to a budget will help with many aspects of your financial health, and it doesn’t have to be very complicated. In general, you only need to calculate your income, bills, savings and expenses. The budget you create for yourself will specify how much you can spend relative to your income. This information does not count toward the credit limit available on your credit card. It can be easy to overspend on your credit card.
If you need help creating a budget, consider using the Budget Worksheet (PDF).
View your credit card statements
Reviewing each credit card statement can help you maintain a budget each month because it can help you keep track of your expenses. Perhaps a better reason to check your statements each month is to make sure that all of the transactions you list are legitimate. This can help you detect credit card fraud or identity theft. If you notice anything unfamiliar, call your credit card issuer immediately to dispute the charges.
Develop good spending habits
It’s easy to spend freely when you can spread out your payments. Your transactions are usually categorized under your credit card activity. This may highlight which charges are adding up or which purchases are causing you to overspend each month. That’s most of what it takes to develop good spending habits: evaluate your spending each month and then make adjustments.
Check your credit report
Your credit report tells the story of your credit health. It includes all of your credit accounts, credit history and payment history. Reviewing your credit report can help you better understand credit card management. This includes helping you identify accounts or activity that you don’t recognize. It’s a good idea to check your credit report at least once a year.
Keep your credit utilization rate low
Your credit utilization rate is the percentage of available credit that you use. This number is one of the factors used to calculate your credit score, and experts usually recommend that you keep your utilization rate below 30%. Keeping the rate low each month may increase your credit score over time.
Use cash back or rewards
Cash back and rewards programs are a great way to earn money while you spend. Rewards are often a major selling point for credit cards. With Chase Ultimate Rewards ®, you can earn points and redeem them for travel, gift cards, cash back, and more. For example, you can reduce a portion of your credit card balance by redeeming rewards for statements.
It’s one thing to earn rewards; it’s another to redeem them. Always remember to redeem your points for the options available to you.
Consolidating Debt
If you are having trouble handling the monthly minimum payments on multiple credit cards, the solution may be to consolidate your debts. This can be done by transferring balances to a credit card or applying for a debt consolidation loan. In addition, balance transfers can sometimes help you consolidate balances from different cards into one new account balance. This can help you pay off your debts because the introductory or promotional APR for the new account may be lower.
Set up an emergency fund
Life is unpredictable. You never know when you will need money to pay for expenses, including credit card bills. A cash reserve, even in a checking account, can protect you in the event of an unforeseen emergency or life-changing situation. When you use a credit card to pay for an emergency, you may incur debt, interest and affect some of your credit health, such as your credit utilization ratio. It is often better to use both cash and a credit card in an emergency than to use only one of them.
