How do I properly use a credit card?

To properly use a credit card, you need to: 1) compare credit cards to find the best one for your needs; 2) keep your credit utilization low; 3) spend only what you can afford to repay; 4) pay at least the minimum amount required by the due date each month; 5) avoid accruing interest; and 6) review your transaction history. It’s as simple as that.

As long as you use credit cards responsibly, they’ll help you build credit and continue improving your credit score. Unfortunately, far too many people make costly credit card mistakes. So, it’s worth recapping the best practices, to make sure you have things straight.

How to Properly Use a Credit Card

1. Compare credit card offers.

Find the right combination of rewards, rates, fees, and approval requirements for your needs. Choosing wisely the first time will also help you avoid multiple applications in a short period of time, which can temporarily damage your credit score.

If you would like some guidance, you could try WalletHub's CardAdvisor tool or create a free WalletHub account to get personalized credit card suggestions.

2. Spend only what you can afford to repay.

Create a budget for your credit card purchases and stick to it. Racking up big balances is how you get into big trouble with credit cards. You’ll waste a lot of money on interest, for one thing. Your debt could also become too expensive to keep up with, leading to missed payments and credit-score damage.

In fact, most people could stand to do a bit less spending, considering the average household has almost $10,000 in credit card debt.

3. Keep your credit utilization low.

Credit utilization refers to how much of your available credit you use on a monthly basis. You should try to use less than 30% of your credit limit. A low credit utilization ratio signals that you are a responsible cardholder, not desperate to borrow. If your credit utilization ratio surpasses 30%, your credit score could fall.

4. Pay your bill on time every month.

You can set up automatic payments to never miss a due date. This way, payments will be deducted from a linked bank account automatically every month, on a set date. Just make sure the linked account has sufficient funds.

Paying at least the minimum amount required by the due date will keep your account in good standing and is the key to building a good or excellent credit score. 

5. Avoid interest whenever possible.

If you really want to use a credit card wisely, you’ll not only pay your monthly bills by the due date, but you’ll pay them in full to avoid interest. This is the most responsible and least expensive way to use a credit card.

Most credit cards have a grace period between when your monthly statement is generated and when your payment is due. Interest won’t accrue during this period if you always pay in full.

Alternatively, you can avoid interest temporarily by getting a 0% APR credit card. Just make sure to get out of debt before the regular APR kicks in.

6. Review your transaction history.

This way, you’ll be able to spot fraudulent charges, should they ever appear. And regularly reviewing your spending is key to making sure it doesn’t get out of hand.

If you spot any unauthorized transactions, like unknown purchases or withdrawals, you should report them immediately to the issuer of your credit card to ward off any further fraudulent activity and to reverse any invalid transactions.

Using a Credit Card Properly Helps You Build Credit

Credit cards are a great tool for building your credit score. The best way to build credit with a credit card is to follow the steps described above. But even if you don’t trust yourself to use a credit card responsibly, the best thing you can do is open a credit card account and lock it away somewhere (after setting up automatic payments for any fees it might charge).

Just having an open credit card account, even with zero balance, will still benefit your credit standing. So, not having a credit card is actually irresponsible as far as your credit score is concerned.

You can find plenty of additional pointers in WalletHub’s New to Credit Guide. And you can learn more about what not to do from our list of the biggest credit card mistakes.

Recipe for using a credit card responsibly: 

3 tbsp. low utilization
1 lb on-time payments
2 cups don't treat it like free money