Credit cards offer valuable opportunities to build credit while earning rewards. However, if not used responsibly, they can lead to a snowball of debt. The best way to use a credit card is to avoid paying interest by paying the bill on time each month. Cardholders generally prefer to avoid paying interest whenever possible, but there are several important steps to take when it comes to how to use a credit card correctly.
How to use a credit card correctly
When you use a credit card you are borrowing money. A credit card does not increase the amount of money available to you. Your credit card spending should be consistent with your household budget.
If you don’t use your credit card wisely, you can run up debts, soil your name and even pay bills with interest.
1. Pay your bill in full
The amount you owe on your credit card is the invoice. Try to pay it in full by the due date. If you do not pay your balance by the due date, you will be charged interest from the date you made the purchase. The interest you pay increases the price of everything you buy with your credit card.
Paying your monthly balance in full demonstrates to creditors that you are responsible. Making late payments or missing payments regularly will hurt your credit score.
2- Choose a card that brings you benefits
Could you, for example, benefit from earning cash back at gas or grocery stores? Do you travel frequently and want to earn points or miles? Are hotel discounts important to you?
These questions can help you determine the type of card you want and what potential rewards would be most beneficial to you. Start your research by comparing credit cards from various card issuers or banks, such as C6 Bank, Itaú or Inter. So if you need assistance comparing offers, use a card comparison tool.
3- Spend less than your credit limit
Use only the credit you really need. Better yet, keep your credit card bill well below your credit limit. Also, try to use less than you have in your bank account.
Signs that you are spending too much
If you find yourself in one or more of the following situations, you may be living beyond your means:
- Your credit card bill is increasing.
- You use all your available credit.
- You don’t make a payment or make only the minimum payment on your credit card bill.
Finally, use your credit card for benefits and not for more “money”, if your card doesn’t bring benefits, cancel it!
