August 27, 2024

How to Use a Credit Card Responsibly: 8 Tips

Credit cards are a double-edged sword in the personal finance ecosystem. On one hand, they offer fantastic convenience and rewards. On the other, they present serious pitfalls if not handled with care. Think of it like driving an automatic car –– it's straightforward, but you need to know the rules of the road.

So how do you stay in your lane and strike a healthy balance with your credit card? The EarnIn blog has you covered.

In this guide, we'll take you through how to use a credit card responsibly without racking up charges. We’ll also provide real-world tips and help you confidently navigate the credit card landscape.

How do credit scores work?

Before we dive into credit cards, let’s discuss credit scores — those seemingly mysterious numbers that hold a lot of power.

Credit scores are like a financial report card –– it’s all about how well you manage your money. These figures highlight your financial life, logging all your biggest maneuvers and regular payments. They're determined by several factors: how much of your total credit you’re using, if you’ve paid your bills on time, how long you've had credit, and more. Your score changes frequently and ranges from 300 to 850; the higher your score, the stronger it is.

Credit scores have been in use in the US for several decades now. Before that, individual lenders made lending decisions based on gut feelings, which led to unfair outcomes. To make things more transparent and streamlined, FICO (Fair, Isaac and Company) introduced the scoring system in the late 1980s to make lending decisions more objective and interest rates fairer and more uniform. Because everyone should get a shot at borrowing money, right?

Credit scores are the financial industry’s way of rating your overall financial responsibility. Keep building your score, and you'll be in a better position when it's time to make big life moves like purchasing a car or moving homes.

How do credit cards impact credit scores?

Using your first credit card well can do wonders for your credit score. When you pay your bills on time and keep your card balances low, you’re showing the card issuer that you’re a responsible spender. In turn, the financial industry rewards you with a high credit score. This opens doors to better interest rates, loan opportunities, and credit card offers.

In short, one of the best ways to use a credit card is to build your credit history and raise your credit score.

But remember, if you go on a spending spree and max out your credit card, it can send your score on a rollercoaster ride — and not the fun kind. High balances may make it seem like you’re struggling to manage your finances, which is a big no-no in the world of credit scores.

The more you prove you’re a reliable borrower, the more trust lenders have in you. So always use credit responsibly — bearing in mind that the money you spend with your credit card is just as real as any other kind.

8 tips on how to use a credit card responsibly

Your credit card can feel like a shining ticket to paradise in your wallet. But with great power comes great responsibility. Here’s how to master the art of paying via credit card:

1. Pay it off on time

This is the golden rule. Always pay your bill on time (and remember that paying the bill in full is always the cheapest possible option). Set up calendar reminders or automatic payments to never miss a due date. Check out our credit card payoff calculator to get personalized plans for smarter, efficient repayment.

2. Use it, don’t abuse it

Sure, you can use your credit card for every little thing, but that's not necessarily wise. Maintain your credit limit at around 30% or lower. Meaning, if you’ve been granted a credit limit of $1,000, it’s advisable to use roughly $300 or less to avoid a negative impact on your credit score or an over-limit charge (somewhat like an overdraft). This will also help you
avoid falling into unmanageable credit card debt.

3. Read the fine print

Remember that asterisk indicating terms and conditions? Try to read them instead of just scrolling through them. These details are important, as the credit card issuer might mention information about late fees, interest rates, and perks, all of which will affect you.

4. Build a buffer

Create an emergency fund so you’re not leaning on your credit card for unexpected bills or running up balances you can’t pay in full. If you have to maintain a balance, you may want to look for low-cost balance transfer programs.

5. Review your statements

Every credit card-issuing entity sends a monthly statement of your expenses (generated on different dates for all accounts). Review these statements to cross-check all transactions and catch unauthorized charges or errors, if any.

6. Stay away from cash advances

Cash advances are short-term loans that financial institutions sanction in exchange for the available credit in your account. These often come with high fees and interest rates. It’s best to avoid them to save on those additional charges.

7. Keep an eye out for balance transfer programs

Balance transfer programs, as the name implies, involve shifting debt from one account to the other at low interest (sometimes zero). This can help you save money when it comes to paying back loans.

8. Beware of reward traps

While credit card rewards and points can be great, don’t let them lead you into overspending. They’re never worth carrying an extra balance.

How to make the most of your credit card’s benefits

Credit cards, unlike their debit counterparts, are famous for their wide range of rewards and perks. But how do you know which of your gold, silver, and platinum cards offer the best benefits for you? To truly harness these additional rewards, you need to act strategically. Here are a few tips and tricks for maximizing your cardholder perks:

Rack up rewards

Many cards offer rewards like cash back, airline miles, or points for every dollar you spend — often with different reward rates for buying gas, groceries, travel, etc. — so make sure you’re familiar with your specific rewards program. Whether it's getting money back on your everyday expenses or booking a dream vacation with those miles, these rewards can put a smile on your face. Just remember that they aren’t really “free” if you have to spend to obtain them.

Tap into purchase protection

Some credit cards offer purchase protection, which means they might cover you if your new gadget gets stolen or your new couch arrives damaged. Check your card's terms to see what kind of protection it offers and save yourself from those unexpected “uh-oh” moments.

Score discounts and deals

In addition to cash back, your card issuer might have partnerships with retailers, giving you access to exclusive discounts. From movie tickets to restaurant discounts, these perks can save you some serious cash if you take advantage of them without spending needlessly.

Leverage travel perks

If you're a frequent flier, your credit card might offer travel perks like free checked bags, airport lounge access, or even travel insurance. These little extras can make your travel experience smoother, more enjoyable, and less expensive. In fact, if you use your credit card overseas, you might actually save on currency conversion charges. Just be aware of any foreign transaction fees the card issuer may charge.

But remember, not all credit cards offer the same benefits, so knowing what your specific card and issuer brings to the table is essential. Shopping around and comparing various cards against competitors can help you discover the credit card best suited to your needs. And always keep in mind that you don’t want to go into credit card debt just to get those shiny rewards.

Build your financial health with EarnIn

Now that you understand what to use a credit card for and how to use it responsibly, it’s a great time to talk about improving your overall financial health. That's where EarnIn can help.

To start, consider the power of having access to your wages as you work instead of waiting for your paycheck. That’s exactly what our popular, innovative Cash Out tool does, a much less expensive alternative to credit card advances. Whether it's paying off your credit card on time, handling an unexpected car repair, or treating someone special in your life to a night out, having access to up to $150 a day of your pay when you need it is a real gamechanger.

So as you make the most of your credit card’s benefits and build your credit score, remember that financial momentum is more than just numbers on a screen; it’s your ability to keep moving forward toward your goals.

Download EarnIn now.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.

¹See how your credit score is calculated at myFICO.com
²On-time payment history can have a positive impact on your credit, and late payment may negatively impact your credit. Impact on your credit history may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.