How to Use a Credit Card Responsibly

1. Understand the Fees and Terms

To make the most of your credit card, familiarize yourself with its fees and terms. The "Schumer box" at the top of your cardholder agreement lists the card's most important interest rates and fees, including:

• Purchase APR: The purchase annual percentage rate (APR) is the interest rate you'll pay on purchases for any remaining balance you don't pay off before the grace period ends.
• Penalty APR: Missing a credit card payment can trigger a penalty APR higher than your normal purchase APR. This APR may apply to future purchases or existing balances, and could also wipe out any promotional APR.
• Balance transfer and cash advance APRs: Cash advances typically have higher APRs than purchases. APRs for balance transfer are usually lower.
• Annual fee: Cards that charge annual fees often offer rewards and perks. Be sure the benefits outweigh the fees.
• Cash advance fees: In addition to the higher APR, there may be fees for taking a cash advance on your credit card.
• Balance transfer fees: Transferring a balance to a credit card typically incurs a balance transfer fee of 3% to 5% of the amount transferred.
• Late fees: Card issuers can impose late fees if your payment is even one day late.
• Returned payment fees: You might pay a fee if the account used to pay your credit card bill has insufficient funds.
• Foreign transaction fees: Purchases outside the U.S. or in currency other than U.S. dollars can trigger a foreign transaction fee if your card charges this fee.
• Grace period: The grace period on a credit card is the time between the end of the card's billing cycle and the payment due date.

Additional details about your card's terms may be further down in your cardholder agreement or on the card issuer's website. These include:

• Special offers: If a new credit card has a promotional introductory APR, deferred interest offer or introductory bonus offer, make sure you understand the terms and conditions.
• Rewards program rules: Clarify how rewards programs work; how the card issuer defines qualifying travel, dining, gas and grocery purchases; and how to activate and redeem rewards.
• Purchase protections: Some cards have purchase and travel benefits, such as extended warranties or insurance on products or services purchased with the card.
• Authorized-user fees: There may be a fee to add an authorized user to your credit card.

2. Always Pay Your Credit Card Bill on Time

Paying a credit card bill late can incur late fees or penalty APRs. Because payment history is the biggest factor in your credit score, a late payment can also damage your credit. Once your bill is 30 days past due, the credit card issuer can report it to credit bureaus. This negative mark remains on your credit report for seven years.

Streamline your monthly bill payments to stay on top of due dates. You can set phone and calendar reminders to pay bills, schedule one day a month to pay all your bills or set up automatic payments to cover at least your minimum amount due. You can easily add extra payments during the month or set your autopay for a higher amount—just make sure there's enough in your bank account to cover it.

3. Pay More Than the Minimum Payment

Making a minimum payment is better than missing a payment, but paying your credit card bill in full every month is ideal. If making the minimum payment leaves a balance on your account, you'll incur interest on that amount. Credit cards charge compound interest—interest on your balance and on the interest that accrues—which can get expensive.

To avoid accumulating interest, pay your statement balance in full. If you can't pay the entire statement balance, pay as much as you can.

Paying just the minimum balance on a high credit card balance can mean ending up in a debt cycle that's hard to escape. Use a credit card payoff calculator to create a plan to pay down your debt.

4. Keep Credit Card Balances Low

Storing your credit card information with online retailers or linking it to digital payment accounts makes spending so simple, you can easily overspend without realizing it until the bill arrives. The lure of rewards or introductory bonuses might also tempt you to overspend.

To keep your card balances low enough to pay off each month, set a budget and avoid impulse purchases. Using credit cards for things you'd buy anyway (such as groceries or gas) instead of for splurges or impulse buys can help you keep spending in check. You can maximize credit card rewards by matching the card to the purchase; for instance, use a card offering cash back on groceries at the supermarket.

A growing credit card balance can hurt your credit score if your credit utilization ratio gets too high. This ratio compares the amount of credit you have available to the amount you're currently using. A credit utilization ratio of 30% or more can have a more significant negative effect on your credit score.

To avoid negative impacts on your credit, aim to keep credit utilization below 30% (for a card with a $1,000 credit limit, that's a balance of under $300). Those with the highest credit scores tend to keep their utilization below 10%.

5. Set Up Account Alerts

Putting text or email alerts on your credit card accounts can help you track your spending, prevent late payments and spot fraud. Alert options may vary by card issuer, but you can usually choose:

Payment and Balance Alerts

• Payment due date reminders: Choose when you want to be notified that an upcoming payment is due.
• Payments posted: Get confirmation that your payment was accepted.
• Approaching credit limit: Receive an alert when your balance surpasses a certain amount.
• Balance updates: Get notifications of your current balance.

Transaction Alerts

• Purchase alert: Receive alerts when any purchase is made, or only certain types of purchases, such as those over a certain amount; purchases at gas stations; or online, phone or mail purchases.
• Foreign transaction alert: Learning that your card was used in Paris when you were in Seattle, for example, can help you catch fraud early.
• Card declined alert: Notification that your card is declined can also signal fraud.
• Cash advance alert: Know when cash advances go through or when a criminal has received a cash advance.
• Balance transfer alert: Get notified when your balance transfer is complete or a thief attempts a balance transfer.

Common Credit Card Mistakes to Avoid

In addition to following the steps above, you should avoid these common credit card mistakes.

Maxing Out Your Credit Card

Credit scoring models measure utilization of each credit card and of all your cards in total. Even if your total credit utilization ratio is below 30%, using more than 30% of your available credit on one card can negatively impact your credit score. Maxing out a credit card can also be a sign you're living above your means and need to cut back. To get your credit card balance under control, stop using the card and make a plan to pay down the debt. This might mean putting yourself on a strict budget or getting a side gig to earn extra money.

Closing Unused Credit Cards

Closing a credit card you no longer use may seem like a smart move, but it can actually harm your credit score. Closing an account reduces your total available credit, instantly raising your credit utilization rate. A long history of using credit is a plus; closing a card lowers the average age of your credit accounts, which can ding your credit score. If the card has a fee, see if you can downgrade to a card without one. If it doesn't have a fee, use the card regularly for one small purchase a month, such as a streaming subscription, and make on-time payments to positively impact your credit score.

Card Smarts

Savvy use of credit cards can boost your financial health. So can monitoring your credit score. Experian's free credit monitoring service gives you access to your Experian credit report and FICO^® Score^☉, plus real-time alerts of changes to your credit report so you can quickly address potential problems.

If your credit score isn't where you'd like it to be, bringing late accounts current and paying bills on time can help improve it. Looking for a new credit card? Use Experian's card comparison tool to shop for cards that fit your credit profile.