10 tips for effective credit card management
Managing credit cards well is not a skill everyone excels at. The good news is that learning effective credit card management is relatively easy once you know the basics. Whether you're a beginner or have some experience with credit cards, we've compiled ways you can help develop and improve your credit habits.
Here are the 10 credit card management tips we'll cover:
- Prioritize paying on time.
- Try to pay more than the minimum each month.
- Create a budget and stick to it.
- Review your credit card statement.
- Develop good spending habits.
- Review your credit report.
- Maintain a low credit utilization ratio.
- Use cash back or rewards.
- Consolidate debt.
- Create an emergency fund.
How to manage your credit card effectively
Credit cards are classified as unsecured debt, so many consumers have a tendency to think of them as “free" money. They're not. There's a bill to pay each month and a balance that can grow with interest charges and fees. In part, effective credit card management comes down to what you do every day and each month. Some steps, however, only need to be taken once in a while to favorably impact your financial health.
Prioritize paying on time
When you make your credit card payment on time, you take one step toward building a positive payment history. Not paying on time may result in a late fee and eventually damage your credit score. Credit card companies report late payments to the credit bureaus. Just as paying on time contributes to a positive payment history, a late payment is a negative mark in your payment history.
Try to pay more than the minimum each month
Paying the minimum amount due on your credit card will cover your interest charges, fees and a small percentage of your balance. However, this is not an effective credit card management strategy for a few reasons. When you continuously make only your minimum payment, your balance may continue building and accruing interest. Paying off your entire balance each month could ensure you pay no interest altogether.
Create a budget and stick to it
Setting and following a budget can many areas of your financial health, and budgets don't have to be very complex. In general, you'll simply calculate your earnings, bills, savings and spending. The budget you create for yourself will clarify exactly how much money you can spend relative to your income. That information isn't factored into the available credit on your credit card. Overspending on your credit card may be easy.
If you need help creating a budget, consider using a budgeting worksheet (PDF).
Review your credit card statement
Reviewing each credit card statement can help you maintain your budget each month because it helps you track your expenses. Perhaps the better reason to check your statement each month is to make sure all your listed transactions are legitimate. This can help you detect credit card fraud or identity theft. If you spot anything unfamiliar, call your credit card issuer immediately to dispute the charges.
Develop good spending habits
It's easy to spend freely when you can spread the payments out. Your transactions are usually categorized in your credit card activity. This could highlight which expenses are increasing or which purchases are causing you to overspend each month. That's most of what's required to develop good spending habits: assessing your spending each month then making adjustments.
Review your credit report
Your credit report tells the story of your credit health. It includes all your credit accounts, their standings and payment histories. Reviewing your credit report can help you better understand credit card management. That includes helping you identify accounts or activity you don't recognize. It's a good idea to check your credit report at least once a year.
Maintain a low credit utilization ratio
Your credit utilization ratio is the percentage of your available credit that you use. This number is one of the factors used in calculating your credit score, and experts often suggest that you keep your utilization ratio under 30%. Maintaining a low ratio from month to month may increase your credit score over time.
Use cash back or rewards
Cash back and rewards programs are a great way to earn while you're spending. Rewards are often a main selling point of credit cards. With Chase Ultimate Rewards®, you can earn points and redeem them for travel, gift cards, cash back and more. For instance, you can reduce some of your credit card balance by redeeming your rewards as a statement credit.
Earning the rewards is one thing; redeeming them is another. It's important to remember to redeem your points for the options available to you.
If you're having difficulty handling minimum monthly payments for multiple credit cards, the solution may be for you to consolidate your debt. This can be done by transferring balances to a credit card or taking out a debt consolidation loan. In addition, balance transfers can sometimes help you combine balances from different cards into one balance on a new account. This can help you pay down a debt because the new account may have a low introductory or promotional APR.
Create an emergency fund
Life is unpredictable. You'll never know when you'll need money to cover expenses, including your credit card bills. A reserve of cash, even if it's in a checking account, can cover you in the event of unforeseen emergencies or life-changing circumstances. When you use a credit card for emergency expenses, you may accrue debt, interest and affect parts of your credit health like your credit utilization ratio. Using both cash and your credit card in an emergency is often better than using only one or the other.
Effective credit card management is a mix of daily, monthly and occasional steps you can take. While it's important to pay attention to monthly spending and paying your credit card bill, it's also essential to review your credit report each year. If you're looking for ways to track your credit score and learn how to build it, try Chase Credit Journey.