A credit card is a tool, much like a hammer or Kanye West.
And yet, this useful financial instrument is anathema to many borrowers, especially young adults. Nearly 70% of millennials, for instance, prefer debit to credit, according to a recent survey by Chime. A blind refusal to adopt credit, however, can hurt your long term wealth.
When used correctly, credit cards can dramatically help your financial life. A great score, for instance, means you’ll pay less when it comes to borrowing money for a house or a car. Rewards, such as cash back rebates and frequent flyer miles, add tremendous value to your spending, while borrowers are entitled to useful ancillary benefits like extended warranties and price protection. In a time of increased illegal hacking, stolen credit cards are much easier to remedy than pilfered debit cards.
Misused tools, though, cause damage, and credit cards are no different. If you’re not careful, you can sink into debt and hurt your ability to borrow money cheaply in the future. A bad stretch of credit behavior can plague your pocketbook for years.
To make the most of your credit cards, and avoid dismissing them out of fear, here are 15 credit card do’s and don’ts.
Don’t Just Pick Any Card
Your first step is to figure out what you want your credit card to do for you. Cash back? Miles? Maybe you want to finance a large purchase or afford yourself extra time to pay off a preexisting debt without accruing interest? Consult MONEY’s Best Credit Cards rankings to understand what options are out there and the variety of roles cards can play in your wallet.
Do Check Your Credit History
Unsurprisingly, credit cards with premier terms and rewards are targeted to those with the best credit. That’s why it’s important to have a sense of how a prospective issuer would view your qualifications. Step one is to consult your borrowing rap sheet – a.k.a. your credit report. You’re entitled to one free credit report a year from each of the three credit bureaus – Experian, Transunion and Equifax. Go to annualcreditreport.com to order your reports gratis, and make sure to contact the bureaus if you spot errors.
An appropriate sense of your creditworthiness will help when you apply. First time borrowers should go after cards designed to build up their credit histories, such as the Northwest FCU FirstCard. A recent study by NerdWallet found that millennials with low credit scores apply, and are rejected, for more cards than young borrowers with better scores. Borrower, know thyself.
Do Use the Right Card at the Right Place and Time
You need a certain amount of constant vigilance to take advantage of a rewards card. For instance, MONEY’s Best Credit Card’s Chase Sapphire Preferred cardholders should spend $4,000 within 90 days to earn the sign-up bonus. If you have to extend your budget to reach that number, then the card isn’t right for you.
The selling point of the American Express Blue Cash Preferred, for instance, is 6% cash back on groceries up to the first $6,000 spent, which roughly dovetails with what those in the upper middle class dole out in a year. That means by using that one card, you can earn an extra $360.
Some cards, like the Discover It and Chase Freedom, offer 5% cash back up to the first $1,500 spent on categories –like Amazon or restaurants– that change every three months. To take full advantage make sure to sign up for the rewards before each three-month cycle and actually use the card on purchases that fall under the bonus categories.
You can also sign up for a little tech help. Apps like Wallaby can help you maximize your rewards.
Don’t Carry a Balance
A credit card is an unsecured loan. If you don’t pay off your card every month, you have to pay interest on the amount you owe.
The average household credit card debt is nearly $8,000, per CardHub, and families with more income tend to have more credit card debt than those who make less. Which means ballooning card debt is a problem that is likely to affect you at one point in your life–no matter what you earn.
Don’t Miss Your Payments
Missing your due date only leads to trouble. It’s better to pay part of your bill on time, and carry a balance, than skip the payment entirely. That way you avoid a late payment fee – usually around $35 – and a hit to your credit score.
Remember, 35% of your FICO score is determined by your payment history. Do what you have to do to stay current, whether that means setting up automatic payments, a Google Calendar alert or paste yellow sticky notes all over your office.
Do Pick Your Credit Card Due Dates
If you still have trouble remembering, you can always pick a payment date that sticks in your head. Generally speaking you can change your due date simply by going to your issuer’s website. Here’s how you do it for your Chase and Discover cards.
Ask for Redress if You Do Miss a Payment
Inevitably, you’ll err. You’re only human.
Some cards give you a little latitude in their terms and conditions. For instance, the Citi Double Cash and Discover It cards won’t charge you a late fee on your first missed payments.
Another avenue is to simply ask your issuer for a reprieve should you happen to miss a payment. Almost 90% of credit card holders who asked their issuer to lift a late fee were successful, and nearly 80% were able to lower their APR through a simple request, per CreditCards.com. Still, only about one in five cardholders actually asked for either.
Do take advantage of Balance Transfers if You’re in Debt
Credit card debt affects everyone. The average credit card burden among the indebted with an income between $126,000 and $150,000 is more than $11,000, per Experian, or nearly double the debt of $51,000 to $75,000 earners.
Financing costs on credit card debt are onerous — NerdWallet pegs the average APR at 18%. To alleviate pressure on your wallet, consider signing up for a card that offers excellent balance transfer terms. (This is when you move your debt from an old credit card onto a new one.)
MONEY’s favorite, the Chase Slate, allows you to transfer your old debt without a fee if you do so within 60 days of opening the card. You’ll then have 15 months to pay off that debt interest free.
Don’t spend too much of your available balance
To keep your FICO score as buoyant as possible, don’t spend more than 20% to 30% of your available credit limit. Issuers don’t look kindly on borrowers who max out their cards each month, even if they pay them off in full.
One trick is to only use your credit card for recurring payments – such as cell phone bills and streaming services – if you think you might overspend. Track your utilization ratio on your card’s website.
Don’t Pay Foreign Transaction Fees
Despite a strong dollar, traveling abroad is still expensive. Don’t make matters worse. Many cards will charge you a foreign transaction fee of about 3% of what you buy overseas. If you’re planning to travel soon, look to a travel card, even if you don’t want to play the rewards game.
The no-annual fee Barclaycard Arrival is a particularly good option, as well as a MONEY Best Credit Card winner.
Don’t Automatically Reject Annual Fees
You might scoff at paying nearly $75 or $100 a year simply for the privilege of owning a credit card. But you shouldn’t necessarily dismiss the idea altogether.
Take the American Express Blue Cash Preferred mentioned above. The card comes with a $75 annual fee, which may scare you off. But you’re also entitled to a $150 sign-up bonus, in addition to 6% cash back on groceries, 3% back at department stores and gas stations, and 1% back on everything else.
The $360 you’d earn at Giant is $65 more than you’d get if you’d use the Citi Double Cash, net the annual fee, which offers 2% back on everything.
Do Use a Credit Card instead of a Debit Card
Your credit card and debit card may look similar if you hold them side-by-side, but the payment processing infrastructure and your issuer treat them very differently.
A stolen credit card is much preferred to a stolen debit card. Not only are you potentially liable for more fraudulent purchases with your debit card, but your credit card will generally be refunded much quicker, since your bank is dealing with credit as opposed to cash.
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Don’t Close Old Credit Cards
Fifteen percent of your credit score is determined by the length of your credit history — which involves the age of your credit accounts. All things being equal, a longer credit history helps you improve your score. Moreover, a closed card means you’re lowering your available credit limit. Even if you keep your spending the same, you risk increasing your credit utilization ratio.
Keep the card open, and use it every so often to keep the card active.
Do Know Your Side Benefits
While a debit card is essentially just a substitute for cash, a credit card bestows perks even beyond rewards.
For instance, many issuers will provide your FICO credit score from one of the three credit agencies every month for free, and the major contributing factors to your score. (This will run you about $20 to purchase from FICO, itself.) You can use the monthly scorecard to make sure nothing is afoot with your credit report. If you do notice a sudden drop, then you can peruse your report to find the error.
Your credit card can also get you price protection on large purchases, extended warranties and free checked baggage on airlines.
Do Redeem Your Rewards
Even if you pick the right card, use 20% of your available credit, pay off your balance every month, you still have to actually use your rewards once you’ve earned them. A recent NerdWallet study found that about one in five cardholders don’t.
And that can mean big money. Let’s say you spend $2,000 a month on the Citi Double Cash — that’s nearly $500 year left on the table.