Everyone has their reason to be afraid of credit cards. You can go into debt. You may face high interest payments. You may get charged fees you didn’t know existed. Fortunately, credit cards don’t have to be complex. By following these three rules, these concerns won’t even apply to you! You’ll never have any credit card debt, never pay any interest, and never pay any surprise fees. In fact, following these rules will allow you to make money using your cards. The power of credit cards comes from your ability to use them responsibly.
#1 Never spend more than you can afford
This first rule looks a little bit different for everyone. Incomes, pay schedules, and spending needs are all unique. But every credit card user has one thing in common: the credit limit. Credit limits are determined by three main components: your income, your credit score, and the age of your account. A brand new card user may have a limit of a few hundred dollars. A middle-aged adult may have a limit in the 10s of thousands. The key is that your credit limit is NOT what you can afford. For the majority of credit card users, it’s much higher. Credit card companies and banks will often set your limit way above what you could reasonably pay in one month. They do this because they don’t care if you spend more than you can afford. If you carry a balance—a nicer word for debt—you’ll owe interest at very high rates. The more interest you pay, the more they earn. What you can afford comes down to what you have in the bank. Stay on top of your spending to make sure you can pay the full balance when it’s due. Your credit card company likely offers auto-pay to help you out. A good rule of thumb is to treat your credit card like it’s a debit card. Think of your limit as your bank account, not your credit limit. Doing so gets you the best of both worlds: a debt free, interest free card with more protections and perks.
#2 Always pay in full
There is nothing forcing you to pay your entire bill each month. Not paying the full bill means carrying a balance. Carrying a balance means you now owe the bill as debt and will be charged interest on a daily basis. Avoiding all of that is as easy as always paying in full. Credit cards usually make it very easy to pay only the “minimum payment” which is typically less than $50. Though it may be tempting, never pay only the minimum. Paying only the minimum will greatly increase the time it takes to pay off the balance. More time carrying a balance means more interest. Pay the entire balance, every single month without exception.
#3 Never miss the due date
This rule may sound obvious, but like Rule #2, you are technically “allowed” to pay late. Be aware though, doing so means late fees and interest charges. Late payments almost always decrease your credit score as well. If you always pay in full and on time, you’ll never face any of these issues. To be honest, there’s no good excuse for paying late. You can set reminders on your phone or use an app to notify you. All major credit card companies also support auto-pay if you feel you really can’t trust yourself. If you didn’t follow rule #1 and spent more than you can afford, it is still important to pay as much as you can on time. This way you’ll avoid a late fee and your credit score will be minimally affected.
Though credit cards come with a lot of responsibility, using them properly is easy if you follow the rules above. Entry level credit cards don’t have a minimum spend. This means you can use your card lightly while you get used to following the rules. Even buying candy at a convenience store once a month can help you build your credit score.