Despite all the criticisms that credit cards get, for some people they are useful and important.
Getting credit cards is not bad but the way people abuse them is what gives out a bad reputation for it when it comes to personal finance.
So in this post, I’ll be sharing different ways on how to manage a credit card.
I’m just done seeing (me), my friends and people getting in massive credit card debts!
Some people think that when they get approved of a credit card it’s also an approval for them to increase their spending.
That’s just the wrong mindset to have.
Although I’m guilty of that as well…and I admit I was one of those people before. I didn’t have any type of management when it comes to my credit card. Every time I had the opportunity to use it, I did.
I’m here to tell you that you need to learn credit card management right now before your balance gets out of hand!
If you’re ready to be a responsible credit card holder, then read on!
15 Smart Ways On How To Manage A Credit Card Like A Responsible Adult
1. Knowing Your Credit Score
First off we need to define the term credit score.
A credit score is an important factor that credit card companies and banks look at when a person is applying for a loan or a credit card.
Credit scores are three-digit numbers that represent credibility when it comes to paying your bills. The three-digit number is calculated by looking at your past transactions – payment history, how much debt you have, credit reports, do you pay bills on time, how many credit accounts you have, how long has it been open and other factors.
While there are other creditors that have their own range of a healthy credit score, the most commonly used would FICO’s score range;
- Exceptional: 800+
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: <580
According to Fico, the categories below are what affects your credit score:
Payment History (35%)
Since it’s the highest percentage, this is what they see as the most important. So if you want to have a higher credit score, make sure to pay those bills on time and build a clean track record.
Amounts Owed (30%)
This refers to how much debt you carry overall. FICO research tells us that the level of debt you carry is an indicator of future credit performance.
If you have loans in your credit card, it doesn’t automatically place you under “high-risk” borrower. Although as you continue to accumulate debt over time, the more you move towards a higher chance of defaulting.
Length Of Credit History (15%)
Longer credit history will always have a good effect when it comes to your credit score. That’s why some people when they are eligible to get a credit card, they apply for it immediately. So that they can start building a good credit history at an earlier age.
Credit Mix (10%)
Credit mix is the different types of credit that you have. They can be credit cards, installment loans, mortgage, auto loans, and others.
Although this is part of your credit score, it’s not wise to avail of different types of loans just to have a good standing on this part of your score.
New Credit (10%)
FICO’s research shows that opening several accounts in a short period of time represents a greater risk for creditors.
A FICO score doesn’t ultimately decide whether you’ll be granted a loan or smaller interest rate, but it does help the creditor on their decision making. To know more about your FICO scores, you can check out MyFICO’s video on that.
2. Research On The Different Card Types
If you haven’t applied for a credit card, you need to know what are the different cards that you can use.
It’s important to note that if you’re seeking great deals in credit cards, you need to earn it first and build your credit score. You need to convince the banks or creditors that you can pay your balances.
Creditors won’t offer great deals if you don’t have records for them to look at.
If you’re looking to start your credit history or reestablish yourself as a good credit payer, you can consider these credit cards:
If you’re still a student, a student credit card would be apt for you. Although building a credit history isn’t the first thing that comes to mind for a student, starting one at a young age can be beneficial in the long run.
Student credit cards are made for students who have little to no credit history. One of the perks of having such cards as a student is that some companies will have promos or features that benefit the student. To know more about this, CreditCards.com just released its best student credit cards for 2020.
Attention: If you’re a college student and thinking of getting a credit card, PLEASE make sure you are responsible enough to manage it properly.
A secured credit card is also an option that you can use. This requires you to deposit in exchange for a credit limit. They ask you to do an initial deposit so that the card issuer can secure their part of the deal when you can’t pay your bills.
This type of credit card is a good way to jump-start your journey to having a great credit history. But don’t settle by using only this card! Work your way to achieving an unsecured card.
An unsecured credit card is the most common type of credit card. Some perks that they would be no deposits required, a higher credit limit, eligibility for good deals, and promos.
If you’re just new to credit cards these are the card types that you should look out for!
Before applying, do some further research, understand their terms and their promos.
Personally, I wish I knew about the student credit cards when I was in university. It would’ve been nice to build my credit history and grades up at the same time! ?
3. Be Mindful Of Your Spending
People think that having a credit card will enable them to spend more. Although there’s some truth to it, thinking this way is just a recipe for financial disaster.
So be mindful of your spending! Make sure that you’re going to use your credit card on purchases that you can pay off on time.
It’s important to be mindful because when we have credit cards, it’s so easy to just pull out a card and swipe it. Or when we shop online, we just connect our credit card to shopping applications.
You can study and research more about mindful spending. It’s a lifestyle-based money management that tells you to be conscious of your spending. It makes you more aware of your thoughts and emotions when you spend.
To read more on mindful spending, check out Satisfied Spending’s article on it.
4. Track Your Spending
I decided to track my spending when I got fed up with always being confused about how my $100 turned to $5 in just a day or a week! If this happens to you frequently as well, it’s time for us to control and track down our spending!
Tracking the things you spend money on will make you see the bigger picture of where your money goes.
I personally like to track my spending using Google Spreadsheet. It’s very convenient for me to just input what I spent my money on and how much I spent.
From my experience, creating different categories or tabs in the spreadsheet was the most fun part of this activity! You’ll really get to know more about your spending habits.
The most challenging part would be filling up the sheet with what you spend on. I’ll tell you right now that sometimes you’ll feel lazy to list down your spending. And sometimes you’ll negotiate with yourself that you’ll write it tomorrow…
But don’t let that thought win!
As much as possible, write down that purchase after a few minutes after the transaction. Because if you let two days go by, I’m pretty sure you’ll be digging hard on your memory bank on what was the first purchase you made this week!
So be disciplined to really write down your expenses. My friend even had an alarm to remind him to write down his purchases?
Credit card purchases should be listed on your tracker as well! This is very very very important so that you can monitor the remaining balance and avoid going over the limit.
5. Create A Budget
Once you’ve tracked down your expenses, it’s time to decide whether you need to cut back on the spending or remain as it is.
This is where most credit card users fall short. They know where their money goes but still, they overspend and have a hard time paying their loans.
Why? Because tracking their expenses is not enough. They should set a budget and follow it.
If you decide to create a budget, don’t stop with just a monthly budget. Go deeper. The more specific a budget is, the better!
Here are 5 steps to start your budgeting activity:
Step 1: List your expense. As mentioned earlier, one of the benefits of tracking your expenses will make you see the bigger picture of where you spend your money.
Step 2: Determine if you’re happy with your spending. If you don’t see any reason to change your monthly spending, then just let it be. But if your goal is to save more money, then proceed to step 3.
Step 3: Look back on where you should cut your spending. If you want to save more money or just simply want to spend less, look at your expense sheet and determine which one should you spend less money on.
Maybe you spend too much on eating outside, then set a weekly budget for your outside food. And if that budget is reached, then it’s time to dine in your home.
You might also be overspending on groceries. You know that you’ve overspent on groceries if you still have untouched or unfinished foods from last month’s purchases.
Step 4: Set up a budget for your credit card and cash. Again, the more specific a budget is the better. Some don’t bother doing this step because they think that you’re done by step 3. But if you put in the time to do this step, the chances of you getting into credit card debt is close to zero.
Step 5: Try it out and tweak it. You might not have a perfect budget right from the start but what’s important is you try it out. If you think the budget is too tight for you to live happily, then adjust it.
To help you with budgeting, here are the best budgeting apps for 2020.
Tracking and budgeting go hand in hand. So if you’re serious with managing your credit card or your finances, make sure to do them both.
6. Let Go Of Other Cards
More often than not, people tend to have many credit cards tied to their names. Sometimes they forget their other cards and they unknowingly accumulate debt.
It’s wise to only have credit cards that you really use. You don’t want to have any recurring charges to a card that you don’t use anymore.
7. No Late Payments
If you don’t pay on time, there will be consequences that you’ll have to face.
First, the late payment fee. The average late payment fee for creditors would be around $40 when cardholders miss their payment period.
Late fees can vary from different credit card companies. Make sure you know how much they’ll charge you if you miss out on your payment. You do this research with no intention of missing a payment but this will serve as a reminder for you not to forget about paying on time.
Late payments can also be a reason for your creditor to increase interest rates. Which is a very painful headache if you accumulate charges over time.
And lastly, late payments can affect your credit score. As mentioned earlier, payment history has the biggest percentage when it comes to your credit score.
If you already have a great credit score, missing a payment will greatly affect it.
Why? Because if you’re in the category of very good or exceptional then that means you’ve been paying on time. So there’s a lot of room in your score to drop compared to the ones who are already in the lower bracket.
And also, a late payment fee of 30 days or more can remain on your credit reports for up to 7 years!
So be mindful of your payment period! Set an alarm, place a reminder on the fridge, place notes around your house.
8. Stay Within Your Credit Limit
Going over your credit limit constantly will also reflect on your credit reports.
Spending over your credit limit may give you overcharge fees, and decrease credit limit. Some lenders might also increase the interest rates if you regularly exceed your limit.
According to Beverly Harzog – a consumer finance analyst for US News & World Report, you don’t want to max out credit cards and spend near the limit. What you want to do is to practice a low credit utilization rate.
A credit utilization rate is how much of your credit are you using. A healthy credit utilization rate would be less than 30%.
It’s a good percentage to have since your trying to manage your credit card. You want to stay within a balance where you can still pay the amount within the given payment period.
9. Check Your Bill
In order to do a successful check of your bill, you should keep the receipts of your credit card purchases.
Once your credit card bill arrives via mail or email, you can cross-check it with your receipts or even you’re expense tracker.
Make sure that every item on that bill is yours. This is a good habit to start so that you can report a fraudulent transaction as early as possible. Plus, this will help you check if there are any mistakes done by the cashier when you purchased something.
I started to do this months ago and it has really served me well!
When I was going over my transactions one night, I remember being double charged in a restaurant a day before I checked my transactions. So I went back to the resto and showed that I was double-charged for my bill. Fortunately, it was easily resolved.
Even if the bill hasn’t reached you yet, you can monitor your transaction daily or thrice a week.
10. Pay The Full Amount
I was really shocked that some people intentionally carry over some credit card balance until the next month. For whatever reason they have for doing this, it’s not an ideal and smart way to manage your credit card.
The best move is to always pay your credit card in full each month. Because if you decide to leave a balance in your credit card, that unpaid amount can be charged with interest.
If you also don’t pay in full, that will also reflect in your credit history which will affect your credit score as well!
Plus, if you continue doing this, your unpaid balance will accumulate over time and you’ll end up with massive debt.
So a good philosophy to have would be to charge what you can afford to pay off!
11. Be careful Of Subscriptions
Sure it’s nice to have our subscription bills be automated but you might have oversubscribed to many services already.
If we’re trying to manage our credit cards, it’s wise to only use it for the things we value.
Make sure that you aren’t subscribed to any magazines that you barely read anymore and gyms that you can’t go to for now. You don’t want recurring fees on services you don’t use.
12. Use Cash
Some people have been so comfortable in using credit cards that they don’t bring cash anymore.
Although we aim for a cashless economy, it’s still wise to bring your cash. Why? Because if you use cash as your primary source of payment, you won’t have the problem of overspending and going beyond the limit of your credit card.
Some people who are in credit card debt goes to the extent of hiding their cards at home so they won’t see it. They’ve learned that they are in credit card debt because of their bad spending habit and always relying on credit cards.
13. Live Frugally
To live frugal means you are smart with your money and your credit card!
A frugal life means you’re able to live off your salary while still living your best life. You are economical with your money and very meticulous in following your weekly or monthly budget.
Benefits of living a frugal life can be:
- Stress-free life
- You spend money on what matters
- Reaching financial goals faster
- More money on savings and investment
- Can weather financial hiccups
To read more on how you can finally live a frugal life, check out my post: How To Live A Frugal Lifestyle To Increase Saving Fast
14. Find The Right Perks For You
Different credit cards have different rewards. What you need to do is to look for rewards that will benefit your lifestyle!
Common rewards would be:
Credit card miles – This type of reward enables you to earn points that you can use for airfare, travel expenses, and even hotel accommodation. The point system will vary for each card! Some will grant you a point for every dollar you spend while others will grant you a point for every $1.50 you spend. So make sure to ask your credit card company to explain in detail their reward points.
For co-branded airline cards, Creditcards.com has listed its best cards in the industry. If you’re always looking to travel, then a credit card that rewards miles might be the one for you!
Cash back – Aside from earning travel points, cash backs are my favorite rewards. This reward system gives back a percentage of the amount spent on a purchase to the cardholder.
Zero to low-interest rates – This promo is usually offered to people who are diligent when it comes to paying off their credit cards. To know the best cards, NerdWallet just released their best 0% APR and low-interest credit cards for July!
15. Understand Your Credit Card Statement
There’s a good chance that many of you don’t really look at everything on your credit card statement. If you’re doing this, then you’re missing out on important details.
A credit card statement is a summary of how you’ve used your card for a certain billing period.
On that statement, you’ll see your account activity, payment information, different fees, and changes to your interest rate.
To know more about this, the Federal Bank Of St. Louis gave out a detailed explanation about the different parts of your credit card statement.
Manage Your Credit Card
Unfortunately, many people are in credit card debt because of their lack of credit card management.
They overspend here and there, not knowing the consequences if they can’t pay on time.
The number of Americans in credit card debt has been increasing over time. And I wrote this post with hopes that you won’t be part of that statistic.
I was once in debt too, but when I decided to take my finances seriously, I managed to climb out of that pile of debt. Plus, I don’t want you to experience the same thing as well!
Let me know below which on these tips have you been doing already! Let’s talk about it?