How to Use Your Credit Card Responsibly: 6 Tips

When used responsibly, a credit card can be an effective tool to establish your credit history, improve your credit score, and earn points or rewards. Paying your credit card bill on time and in full can help you to achieve these goals. 

On the flip side, irresponsible credit card use, including late payments and overspending, can lead to a poor credit score and a lot of debt. If you’re thinking about getting your first credit card or just looking for tips on how to use your credit card responsibly, this article’s for you. 

1. Check Your Credit Card Statement Regularly

Each month, your credit card company will send you a credit card statement. Your statement is an online or paper document that contains account and spending information from your billing cycle. The information on your statement can include: 

• Current account balance

• Previous account balance

• Start and end dates of your current credit card cycle

• Available credit

• Minimum payment due

• Payment due date

• Cash advances

• Interest rate

• Fees

Reviewing your credit card statement each month is a good way to track your spending. Your statement acts as a convenient reminder of how much you’ve spent, what you owe, and the interest rate associated with regular purchases and cash advances.  

Checking your statement regularly can also help to detect any errors and can protect against fraud. If you see an unfamiliar transaction, you should report it to your credit card issuer.

2. Make On-Time Payments

If you are trying to establish or improve your credit score, paying your bill on time is one of the most important things you can do. While your credit score is composed of several factors, payment history accounts for the largest portion (35%). According to internal data from Borrowell, a single missed payment can decrease your credit score by as much as 150 points and can remain on your credit report for up to 6 years. You can also expect to get hit with a late payment fee.  

Paying your credit card bill on time can help you avoid high-interest charges. Consistent, on-time payments show lenders that you can manage your credit responsibly, making you more likely to get approved when you apply for a new loan or credit card. 

By paying your bills on time and in full each month, your lender may also offer to increase your credit limit. A higher limit can reduce your credit utilization ratio (how much of your available credit you are using) which can improve your credit score.

If you struggle to make your credit card payments on time, you can consider setting up automatic payments. Automatic payments are when you set up a payment to automatically come out of your bank on a set schedule. Many credit card companies offer this as an option and allow you to decide if you want to auto-pay the minimum payment, the full balance, or some other amount. You can contact your credit card issuer to see if they offer auto-pay. 

3. Pay More Than the Minimum 

If possible, aim to pay your credit card in full each month. If you can’t pay in full, you must pay at least the minimum amount. Failing to do so can result in an increased interest rate or damage to your credit score. If you can only pay the minimum on your credit card each month, know that it will take you longer to pay off your balance, and you’ll pay more in interest. 

For instance, let’s say you have a credit card balance of $1,000. Your minimum payment is $30 (3% of the balance you owe) and your interest rate is 20%. If you only make the credit card minimum payment of $30 per month, it will take you 10 years and 11 months to pay off your original balance. You will also spend $990.60 on interest. This means you will pay nearly the same amount in interest as your original balance of $1,000. 

Now let’s imagine you have the same balance of $1,000. You still can’t afford to pay off your full balance but you can manage to pay $100 per month. In this case, it will only take you 1 year to pay off your full balance and you will pay $103.04 in interest. 

The best scenario is to pay off your balance in full each month so you pay nothing in interest. 

4. Avoid Using Your Credit Limit

Your credit utilization ratio is a calculation of how much of your available credit you’re using.  Your credit utilization is important because it accounts for 30% of your credit score. Experts recommend trying to keep a credit utilization ratio of less than 30%. To calculate your credit utilization ratio:

• Add up all of the balances on your credit cards (how much of your credit is in use) to get the total balance

• Add up all of the credit limits on your cards to get your total credit limit

• Divide the total balance by the total credit limit

• Multiply by 100 to get your credit utilization ratio percentage

For instance, if you have $1,000 in total credit limit and you’re running a balance of $800, you have a credit utilization ratio of 80%. 

Total balance ($800) / total credit limit ($1,000) = 0.8 x 100 = 80%

A credit utilization ratio of 80% can signal to lenders that you might be overextending yourself. Keeping your credit utilization below 30% and paying monthly payments in full demonstrates that you can responsibly manage your credit. So, if you have $1,000 in available credit, you want to aim to keep your balance below $300. 

5. Avoid Overspending

It’s easy to spend money with a credit card. You can’t see the money leaving your bank account and it’s not even necessary to have the money available in your account before you spend it.  However, overspending on your credit card can have significant consequences. It can make it harder to pay your balance, resulting in more of your money going to interest. With more of your money going to debt repayment, you have less money to spend elsewhere. Overspending can also reduce your credit score by increasing your credit utilization ratio. When you spend too much using your credit card, it’s an easy way to find yourself in a pile of debt that is challenging to get out of. 

One way to avoid overspending is to use your credit card like it’s a debit card. This means you don’t spend the money unless you know you can pay it off. Making more frequent payments throughout the month can prevent you from racking up an unmanageable balance, and can also help to keep your credit utilization ratio low.  

6. Read Your Card Agreement and Terms

If you sign up for a new credit card, always review your credit card agreement and terms. If you find the document too complicated to understand, reach out to your credit card company and ask them to walk you through it. Your credit card agreement and terms outline the details related to your credit card and how you use it. This document can include the following information: 

• Credit card limit 

• Interest rate

• How interest rates are calculated 

• Minimum payment calculation 

• Applicable fees (annual fee, over-limit fee, etc.) 

• Consequences if you don’t make your minimum payment

• How to contact your credit card issuer

• Credit card expiration date

• Your rights as a consumer

When you know the details of your card agreement and terms, you know what to expect. If you understand all of the potential fees and how they are triggered, you can avoid these scenarios and save yourself money.

The Bottom Line

When used responsibly, a credit card can be a convenient way to make everyday purchases while improving your credit score. However, if you don’t know what responsible credit card use looks like, it’s easy to overspend and rack up credit card debt. Use these six tips for how to use your credit card responsibly and develop positive credit card habits. Review your statement to stay aware of your spending, and focus on paying your balance on time and in full each month to avoid accumulating credit card debt and paying interest.