How to Use A Credit Card to Build Credit, Not Destroy It

Credit cards can provide a great deal of benefit for users when utilized properly. Racking up airline miles, building up credit, getting some extra assistance in times of need, cash back rewards… sounds pretty great, right? It is! But that’s only if things are done properly. If you don’t know what you’re doing? Credit cards can hurt. The average American household has over $15k of credit card debt, and it’s not as difficult to do as you may believe. Small mistakes can stack up over time, making little imperfections turn into glaring debt flaws. Credit card debt is entirely avoidable if you stick to some basic principles.

Read the fine print. You know that boring text you scroll past anytime you say “I Agree” on a form? Hey, we do it too. We don’t expect you to get our your reading glasses and go through it with a fine tooth comb, but you should be aware of some basic principles of your card. What is your interest rate? Is it accrued annually or monthly? What is the minimum payment, and what happens if that’s all you pay? Is your interest rate subject to change? Before you sign up for any credit card, and for any card you have now, you should have these answers ready to go.

Buy what you can with cash. Boy, it’s nice to have that credit limit, right? Make a couple of purchases that you can’t afford with the money in your account, pay it off in a couple weeks or months, and no damage done, right? Not really. A simple purchases of $100 can balloon into many hundreds more if not paid off thanks to interests rates. Hey, we get it: unexpected things can happen, and credit cards are great in a pinch. However, for all non emergencies, stick to only purchasing items you can afford with the cash in your account.

Pay your bill on time. A late credit card payment is a massive wrecking ball to your credit, damaging your score, adding interest, and putting you deeper in the hole with late fees. Whether you use a reminder notification on your phone, calendar notice, or anything else that may help you, remember to always make a payment. Speaking of…

Pay more than the minimum. This is a big one. A $50 minimum on a card with thousands in balance won’t even begin to make a dent in your interest, meaning the minimum payment will have you paying more in the long run. Sure, it’ll keep you in good standing, but at the end of the day, it’s not enough to protect your future self from bad credit and nasty debt.