• Tue. Nov 22nd, 2022

6 signs you’re using your credit card responsibly

ByMadeleine J. Pierce

Oct 17, 2022

Ziga Plahutar/Getty Images

Americans have a credit card balance of $887 billion. According to the Federal Reserve Bank of New York, the country billed $46 billion more this year than last, the biggest year-over-year increase in two decades.

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Much of this debt is held by responsible cardholders who shop strategically, within budget and with the goal of rewards that repay them. Unfortunately, much of that has also been recklessly billed by people who view their lines of credit as extra money that gives them more buying power than their income gives them. Instead of perks and perks, their credit card experience will leave them in debt and struggling to borrow.

Cutting up your credit cards is not the solution. The solution is to look for the following signs that you’re managing your credit cards wisely and make quick changes if these six scenarios don’t apply to you.

You have a credit score that does not scare off lenders

Your credit score reflects more than your credit card accounts, but if you use your cards irresponsibly, you can bet your number will go down. According to Credit Karma, there are dozens of scoring models that weigh certain factors differently. But the two most common models are FICO and VantageScore, the latter of which has just been updated from its 3.0 model to 4.0.

Both go up to 850, but FICO starts at 580 as opposed to VantageScore, which starts at under 500.

Good is the middle level, and it should be your floor if you use your cards responsibly. If not, you will move to fair or mediocre levels. The cheapest loans and the best credit cards are reserved for the next two levels, which are very good and excellent – these should be your target ranges.

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You don’t pay interest

After your credit score, the next best indicator of responsible card management is the absence of finance charges. You don’t pay interest on your purchases if you pay your statement balance in full each month.

But if you have a revolving balance, the unpaid portion rolls over to the next month and your debt grows as interest accrues. If you’re doing this, it’s probably because you’re spending more than you can afford.

Those who don’t charge more than they can cover in a given month avoid the quicksand of revolving debt, pay nothing to the bank, and receive lucrative benefits that reward their responsible use of the card.

Your rewards add up

A side effect of maintaining a balance is that the finance charges you incur quickly cancel out any rewards you earn. But if you use your cards responsibly and pay your statement balance in full each month, you should earn points, cash back, miles or other rewards that translate into tangible benefits.

Some people let their cash back accumulate so they can use it to buy holiday gifts. Others increase their rewards to cover a statement balance. Others use their travel cards to accumulate miles so they can fly for free on their next vacation.

Whatever your preference, rewards are the fun part of credit cards, but they’re only for people who charge responsibly.

You have a lot of open credit

The more responsibly you use your cards, the more credit your lenders will give you. Ideally, your credit limits will increase, but your spending will not, and over time you will have more and more unused open credit available to you.

This is called your credit utilization ratio, and it has a big impact on both your credit score and your borrowing power. Lenders like to see that you are using less than 30% of your available credit. Lower is always better, but don’t leave a card unused. If a card remains idle at zero for too long, the issuer may cancel an unused card and close the account – and you lose all available credit on that card.

Your monthly statement is no surprise

When you pay cash, you can physically see your money disappear. When you swipe a debit card, you see your checking account balance decrease.

But since credit card payments are delayed for a month, it’s easy to see money spent as IOUs that somehow have less consequence than cash. This mindset leads to distracted billing and, eventually, overspending.

Your monthly credit card statement shouldn’t be a surprise. It should simply confirm the expenses and purchases you budgeted for and track as you go.

You pay on time, every time

The most important characteristic of responsible credit card use – and the factor that accounts for the largest portion of your credit score – is timely payment. A single missed payment can crush your credit rating and alert any lender considering extending you credit or granting you a loan.

Ideally, you’ll always pay your statement balance in full, but even if you’re having a hard time and can only make the minimum payment, responsible credit card users never let a billing cycle pass without keeping the wolves at bay. distance.

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This article originally appeared on GOBankingRates.com: 6 signs you’re using your credit card responsibly