If you just received your first credit card or your parents made you an authorized user on their account, you now have more spending power in your financial life. Although people with credit cards tend to spend more in general, developing good habits now will prepare you for more credit responsibility down the road. Check out these tips to ensure that you use credit the right way.
Check your card details
Since so many credit cards exist (all with their own perks, limits and fees), it’s smart to know your account well to avoid missing misunderstanding terms, overusing the card or neglecting a due date. A secured card, which is backed by a sum of money in a savings or checking account and has a credit limit equal to that amount, can help you avoid overspending. Secured cards, which issuers such as USAgencies Credit Union provide, can be good starting points for building credit. When you pay your bill consistently on time, you show that you can handle credit responsibly.
Check your credit report
A credit report gives a picture of your credit overall, from a summary of your loans or credit cards to any inquiries that lenders make when you apply for new credit. The three major credit reporting companies (Experian, TransUnion, and Equifax) all provide one free credit report annually, so take advantage of that. Check for any errors or fraudulent accounts you see and notify the company in question if you spot anything.
Avoid overusing credit
Although you’ve probably heard the phrase “test your limits” used in a positive way, when it comes to credit cards this idea can do more harm than good. A good rule of thumb is to spend at most 30% of your credit limit each month, and keep the monthly balance below that level. Future lenders might consider you a high risk if you spend too much with your cards.
Pay bills on time
Like having an overdue library book, paying your credit card payment after the due date will mean an additional fee. Be over 30 days late and in addition to a late fee, it can drop your credit score, which is the 3-digit number that indicates how good you are with credit.
Pay more than the minimum
Your monthly credit card bill usually states the minimum amount you owe, but what it might not say is that you’ll have to pay interest on the remaining balance in future months. It’s better to pay the complete amount you owe so you can avoid extra costs and help raise your credit score.
As empowering and convenient as credit cards can be, they also can work as effective tools to help build your credit record over time. Keeping up good credit card habits can help you avoid debt while qualifying for loans and other products with favorable terms.
By Spencer Tierney, NerdWallet