A Guide to Using Credit Cards Responsibly

It’s tempting to view a credit card as an endless supply of money, but informed users know credit cards aren’t consequence-free. Using credit cards responsibly is a way to build your credit score, boost your financial wellness, and earn rewards. When not used properly, credit cards can lead to spiraling debt. 

Focus Federal Credit Union is here to help you learn all you need to know about credit card usage with this complete guide to using credit cards responsibly.

Benefits of Responsible Credit Card Usage 

Credit cards are one of the most versatile personal finance tools available, but they sometimes get a bad rap. It’s fair to say lousy spending habits, or improper use of them, can lead to problems with debt. But used wisely, credit cards can help you build or improve credit, reap rewards, and better manage high-interest debt. 

Properly used credit cards offer benefits including:

• Building Credit. If you have minimal or no credit, a credit card used responsibly will help you build your credit history. An established history will make it easier to secure a lower-interest loan in the future.
• Enjoying Rewards. Credit card issuers often generously reward healthy credit card habits with airline miles, reward points, and other fun benefits. 
• Grace Periods. Your money immediately goes when you make a debit card or cash purchase. With a credit card purchase, the money stays in your account until you pay your bill. This grace period could provide you with an extra cushion of time. 
• Convenience. A credit card is often more convenient and takes up less space in your wallet than cash. Plus, if you lose your card, your provider can send you a new one. That’s not the case with cash.
• Tracking Spending. You can access your transaction history, including the merchant’s name, the amount spent, and the date of purchase. This information can help you budget and plan.

Refreshing Your Credit Card Knowledge 

A credit card is simply a revolving line of credit. It allows you to charge at any time, up to a specific limit. Each time you swipe your card, the credit card issuer is lending you money to make the purchase. Unlike a loan, a credit card account has no fixed term. At the end of each billing cycle, you can make the minimum required payment, pay the balance in full, or make a payment between these two amounts. 

If you can’t pay your balance in full, you make regular payments until the balance is zero. During this time, you pay an interest rate, known as the annual percentage rate, on purchases, cash advances, and balance transfers. 

Maximizing Credit Card Rewards

Credit cards can be lucrative because of their high reward potential. Every credit card’s rewards structure differs slightly. Rewards tend to come in one of three options: cashback, transferable rewards, or fixed-value points or miles. 

Consider which type of reward matches your spending habits. Would you benefit from earning cash back on gas or groceries? Do you want to earn hotel discounts or airline miles when you travel? These questions help you decide which credit card reward program is most helpful. 

The Focus Platinum and Classic MasterCard earn reward points for everyday purchases. You can redeem points for travel rewards, gift cards, merchandise, or cash back.

After narrowing your options, look at each card’s terms and conditions to know potential fees, payment due dates, and restrictions on using benefits. Any rewards you earn are quickly eclipsed by interest and late fees if you can’t pay off your balance every month.

8 Tips for Using Credit Cards Responsibly

Credit cards can be tricky. Like any tool, if used the right way, you’ll experience advantages. But it’s common for people to make mistakes when using credit cards. Here are eight tips for maximizing your benefits and using credit cards responsibly. 

Tip 1: Use Your Credit Card as a Budgeting Tool 

By making all your purchases with your credit card, you can see exactly how much you’ve spent at the end of the month. Many credit card issuers will classify your purchases by category. You can get an overview of your spending by type when you log into your account. Tracking spending in one place can help you prepare and adjust your budget. 

Tip 2: Pay Your Balance Monthly  

Credit cards tend to have high-interest rates relative to other kinds of loans. Paying bills in full each month helps prevent you from falling into the cycle of endless minimum payments, high-interest accruals, and a whirlpool of debt. A single late payment is not much, but it could be a slippery slope leading to debt and low credit scores. By restricting the use of your card to only what you can afford, it’s easier to pay the balance every time.

Tip 3: Use the Card for Needs 

Only use your credit card for purchases you can afford to pay off by the end of the month. This approach makes paying off the entire bill each month easier. Think of it as a debit card, meaning you don’t want to spend more money than you have in your bank account. 

Tip 4: Never Skip a Payment

Send every payment on or before the due date. If you can’t pay the entire balance, send the minimum amount. While on-time payments can improve your credit, late payments will hurt it.

Tip 5: Use a Reward Card

If you’re using a credit card for most or all your purchases, using a card that offers rewards makes sense. Responsible credit card users are generously rewarded through airline miles, reward points, and other benefits.

Tip 6: Set Up Auto Payment

Late fees and penalties for missed payments can get expensive. To ensure your balance is always on time, set an appointment on your calendar to make your monthly credit card payments. Another way to avoid missing a payment is by setting up auto-pay. Automating is an easy way to avoid late fees. 

Tip 7: Review Your Statement 

Your credit card statement records all your transactions during a billing period. Issued once a month, you can receive a paper statement by mail or an e-statement via email. When you know what to look for, it’s easier to keep track of your finances and flag unauthorized charges. 

Tip 8: Establish an Emergency Fund

An emergency fund helps you react to financial emergencies such as medical bills, unexpected repairs, or other unplanned expenses. Having an emergency account can decrease your reliance on credit cards. Ideally, you would build up three to six months of income, but any amount can help to offset unexpected costs without incurring credit card charges. 

Credit Card Security and Smart Practices 

When using a credit card, there’s a trade-off between security and convenience. Certain security risks are beyond your control, but ways exist to protect and reinforce established safeguards.

Best practices to maximize your credit card security and privacy are:

• Monitor Transactions. Credit card fraud isn’t always one large transaction. Sometimes criminals make a series of small charges to bleed an account steadily. You have 60 days to alert your card issuer of fraudulent charges. If you notify them after this time, you may be on the hook for the purchases. You don’t have to wait for your monthly statement to review your transactions. Set up account alerts to notify you of activity on your account. Check your bank statement thoroughly to ensure you don’t miss any suspicious transactions. 
• Set Unpredictable PINs and Passwords. A PIN adds a layer of safety to your transactions. Select a PIN that’s not easy to guess and isn’t a personal identifier like the last four digits of your Social Security Number or date of birth. Change your PIN at least every six months. 
• Report Lost or Stolen Cards. Keep your debit or ATM card in a safe and secure place. If you misplace your card, inform your bank or credit union immediately. 
• Shop Secure. Have you ever noticed certain URLs begin with https instead of the standard http? The “s” stands for secure. It indicates that the site uses an encryption code to transmit data online. 
• Watch for Phishing Scams. Phishing emails and text messages trick you into opening a link or attachment to cause malice. If an email looks suspicious, delete it.

Managing Credit Card Debt

Just because you’re given a credit limit of a certain amount doesn’t mean you need to use all of it. Successfully paying off your debt requires a lot of effort. The debt likely occurred over time, and paying it down will take time. 

Break out of credit card debt by:

• Paying More Than Minimum. While paying minimum credit card payment is tempting, it can add time to how long it’ll take to pay off the balance. Banks make money off the interest they charge each billing period, so the longer you pay, the more money they make. If you’re practicing a debt snowball or avalanche approach, you’ll have more money to make sure you’re contributing what you want to each account.
• Considering Debt Consolidation. Consolidating your debt lets you combine multiple high-interest balances into one with a lower rate. You make one monthly payment to chip away at the balance. Consolidating debt can help you pay down your debt faster without increasing the payment amount. 
• Seeking Help. Fiscal guidance programs educate and advise you on how to make wise financial decisions. These apply to virtually every money-related category possible. Financial counseling can be beneficial for budgeting, savings, debt management, or bankruptcy counseling.

Using Contactless Payments and Mobile Wallets

Tap-to-pay cards and mobile wallets provide contactless payment options and have experienced an increase in popularity. Contactless payments are widely accepted. Most new terminals accept mobile payment, and many vendors encourage the practice.

The most commonly used contactless payment methods are contactless debit and credit cards. “Tap to Pay” cards look the same as a regular card from the exterior, but inside contain a small antenna allowing wireless communication with a reader. These cards typically come with a magnetic strip and chip, so you can also use a card in more traditional ways if a store doesn’t have a contactless-capable card reader.

Other contactless payment options are mobile apps and wallets. To use, you enable your smartphone’s contactless pay capability, download the desired applications, and use the phone like a Tap to Pay card. Two popular mobile wallets are Google Pay and Apple Pay.

Understanding Your Credit Score

Understanding how it impacts your credit scores is part of getting and using credit cards. Lenders use credit scores as a factor in determining financial risk. A higher credit score demonstrates you’re a responsible borrower. A high credit score makes you more likely to be eligible for lower interest rates when applying for a mortgage or car loan. Landlords even use it in their screening process.

Most lenders use the FICO model. Scores range from 300 to 850 and are rated as:

• Poor: 300-579
• Fair: 580-669
• Good: 670-739
• Very Good: 740-799
• Exceptional: 800-850

Payment history and credit utilization comprise a big part of your credit score. But the score also factors in your credit type, history, and recent credit card applications. 

The scoring model weighs these factors to determine your score:

• Payment History. Payment history is the most influential factor in calculating your credit score, accounting for 35%. Payments made more than 30 days late are reported and hurt your credit. While late or missed payments drag your score down, building a history of on-time payments can help boost your score. 
• Credit Utilization. Your credit usage, commonly known as a credit utilization rate (CUR), is the second-most significant factor. Your CUR is the amount of credit used compared to the total amount available. For example, if your card limit is $8,000 and you have a balance of $2,400, you’re using 30% of your available credit. A high CUR can significantly damage your credit score while keeping it under 10% can help your credit.
• Length of Credit History. Your credit history comprises 15% of your FICO Score. The longer your credit history, the better your score. Keep old accounts open, as they will help increase the length of your credit history.
• Credit Mix. Your different types of credit accounts play a role. Your credit mix factors 10% of your credit score and demonstrates how you manage various credit accounts.
• New Credit. Most card issuers perform hard inquiries during the application, which may temporarily hurt your credit. Too many inquiries and accounts can indicate increased risk, hurting your scores. 

Traveling with Credit Cards

Carrying large amounts of cash is rarely a good idea, especially when you’re away from home. Any money is gone forever if your wallet is lost or stolen. But with a credit card, if you lose it or it’s stolen, you can cancel it online or through the app and get a replacement expedited. You won’t be liable for unauthorized charges, either.

Most businesses accept credit cards for payment, and many hotels require one before turning the key over to you. Credit cards can help you avoid overspending while vacationing. You can track your spending with mobile or online banking services allowing you to enjoy your trip while staying on budget.

Credit Card Options with Focus

Credit cards are powerful tools but can quickly become a liability if not used properly. Central to using credit cards responsibly is only spending what you can afford, paying your bills on time, paying your balance monthly, and ensuring you pick a credit card that’s right for you.Focus offers credit card options for your financial situation. And if you need help getting your credit back on track, we have the tools and resources to help.

Abigail Cabello

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