When it comes to smart money management, good credit card habits are non-negotiable. Credit cards come with known drawbacks. They make it easy to swipe thoughtlessly for impulse buys, they come with sky-high interest rates, and they have the potential to trap you in a vicious cycle of debt. But despite these pitfalls, credit cards aren’t all bad news.

In fact, good credit card habits can benefit your personal financial situation in many ways: They can elevate your credit score, help you take advantage of rewards, and keep you in check in your budgeting goals. That’s why it’s important to foster these good habits no matter where you are in your personal finance journey and make sure you’re using plastic responsibly.

1. Pay in Full and on Time

Of all the good credit card habits to have, the single most important is paying your full balance off every month. Not only does this prevent the snowballing of debt, but it’s also a huge influence on your overall credit: Payment history accounts for a whopping 35% of your FICO credit score.

When you let a balance carry over from month to month, interest accrues, ballooning the amount you actually have to pay back. You also run the risk of being charged late fees if you miss your payment due date. That adds more debt to the pile.

If you’re struggling to make this a habit, try scheduling multiple smaller payments throughout the month to coincide with paydays. This can give you some breathing room and much-needed motivation to see the balance trend down over time. You should also consider setting up automatic monthly payments before the card’s due date so you don’t have to manually remember.

2. If You Can’t Pay in Full, Pay at Least the Minimum

So you aren’t able to pay your credit card balance in full each month. What’s the plan in the interim, then? It’s crucial that you make at least the minimum required payment. Doing at least this will prevent you from racking up late fees and keep your account in good standing. It will also prevent you from getting a late payment ding on your credit score.

However, making only the minimum monthly payment means your balance will start to accrue interest. Per the Federal Reserve, as of November 2024, the average interest rate on a credit card was 21.47%. It’s important to try to chip away at your overall balance so you don’t get trapped in a cycle of paying off interest.

3. Don’t Max Out Your Cards

Amounts owed is the second highest-weighted factor in determining your credit score, accounting for 30% of the overall score. This means that the more of your available credit you use, the lower your credit score can fall.

Many financial experts recommend keeping your credit utilization under 30%. What would that look like in real life? As an example, let’s say you have three credit cards with the following credit limits:

• Card 1: $3,000
• Card 2: $5,000
• Card 3: $10,000

Your total available credit is $18,000. But to keep your credit utilization under the recommended 30%, this means you would need to keep your balance across all three cards under $5,500.

It can be tempting to max out your cards and use the whole credit limit, but doing so has doubly negative implications: Not only will you rack up more hard-to-beat debt, but your credit score will take a hit, too.

4. Don’t Close Your Unused Credit Cards

If you have a credit card collecting dust in your wallet, or perhaps you’ve recently paid one off in full on your debt repayment journey, you may be tempted to close the card and be done with it. However, this isn’t necessarily the best course of action.

When you close a credit card, your total available credit limit shrinks. If you’re carrying balances on the other active cards, you’ve effectively sent your credit utilization rate skyward—and this will hurt your credit score.

Unless the card is proving too tempting to use, and you’re worried about a debt relapse, it’s better to leave your credit cards open. This will help contribute to a positive overall credit score.

5. Stick to a Budget

It may sound obvious, but good credit card habits require you to stick to a budget. Whether formal or informal, a budget is always the answer in maintaining good financial habits, period.

When making a budget with credit card spending in mind, here are some key things to consider:

• Do Weekly Budget Check-Ins: Budgets aren’t set-it-and-forget-it. You need to periodically check in, compare your planned spending against your actual spending, and make sure you aren’t using your credit cards for more than you should reasonably be using them for.
• Follow the 30% Rule: Keep running tabs to make sure you’re using less than 30% of your overall available credit limit.
• Set Up Automatic Payments: It’s easy to miss a payment when you have to remember to make it. To avoid late fees, set up automatic payments or reminders. This helps steer you clear of penalties and damage to your credit.
• Assign Spending Categories: Split up your spending needs into categories, like groceries, gas, and bills. Try to use cash for discretionary spending to avoid racking up your credit card balances.

6. Make the Most of Rewards

Credit card rewards are never worth going into debt for. That said, if you’re responsible with your credit card use, you’d be remiss in not taking advantage of rewards.

One approach is to focus the majority of your credit card spending on a primary card that offers perks most valuable to you, whether those are points, miles, or cash back. Some cards also offer promotional periods, where you’ll earn extra rewards on certain spending categories like gas, streaming subscriptions, or groceries.

Many cards also offer member perks like purchase protection, trip cancellation insurance, and airport lounge access. You should always be aware of what benefits are available to you as a cardholder so you get as much value as possible out of your credit card.

If you’re strategic with your credit card use, you can effectively be rewarded for spending money without overextending yourself financially.

7. Understand Your Card Terms

When you sign up for a new credit card, it’s important to read through the terms before you hit “apply.” Knowing what’s in your card agreement is an important part of responsible credit card usage. This document breaks down important disclosures, including fees, interest rates, and billing cycles, ensuring that you’re aware of what to expect. For example, most companies prohibit you from paying your credit card with another credit card.

When you’re looking over the terms, there are some key aspects to focus on:

• Fees: Credit cards come with fees. These may be transaction fees, annual fees, late fees, over-limit fees, cash advance fees, and so on. It’s important you understand what you might be charged in any of these events.
• Interest Rates: You need to understand your card’s APR. This determines how much interest you will pay on unpaid balances. Beyond that, your cardholder agreement may state that you’ll be charged a higher penalty APR if you violate your terms. And if you have a balance transfer card that comes with an introductory 0% APR offer, you need to be aware of what the rate will become once the promotional window closes.
• Billing Cycles: Keep track of your billing cycles, too. It’s important to know when you’re required to make a payment so you can avoid penalties and maintain a good relationship with the credit card company.

8. Check Your Monthly Statements

Reviewing your monthly statement is another good credit card habit. Credit card spending can easily become impulsive. It’s easy to spend beyond your means when you don’t feel the tangible sting of money leaving your wallet.

Make sure to examine your statement each month so you can stay aware of your spending habits and see where your money is really going. Additionally, it’s also important that you quickly detect any unauthorized charges, fraudulent activity, or billing errors so you can file a dispute.

Good Credit Card Habits: FAQs

How many credit cards should I have?

This depends entirely on your unique financial circumstances. It also depends on your ability to pay the cards off in full and on time. For most people, one or two credit cards is sufficient. If you’re able to handle multiple credit cards responsibly, it can be a great way to earn rewards in the form of points, miles, or cash back.

Will checking my credit score hurt my credit?

No, checking your credit score will not hurt your credit score. However, if you apply for new credit, this is considered a “hard inquiry” and can temporarily lower your score.

Are credit card rewards worth it?

If you can responsibly keep your credit card balances in check, credit card rewards can absolutely be worth it. You may get discounts on flights or hotel stays, or cash back in the form of a statement credit or direct deposit. However, credit card rewards aren’t worth going into debt over. They also become worthless if you don’t pay your card on time, as many credit card issuers require your account to be in good standing in order to get the rewards.

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