Credit cards have become an essential part of our daily lives. With convenience and rewards, they can serve as powerful financial tools when used responsibly. However, it's easy to get in over your head with credit card debt if you're not careful. In order to make the most of your credit cards and maintain a healthy financial life, it's crucial to follow some basic rules. In this article, we'll break down the essential rules for credit card use that every millennial should know!
Rules For Credit Cards Table of Contents
1. Choose the Right Credit Card
2. Know Your Credit Utilization Ratio
3. Pay Your Credit Card Bill in Full and On Time
4. Read the Fine Print and Watch for Changes
1. Choose the Right Credit Card
Before diving into the world of credit cards, it's important to find one that meets your specific needs and preferences. Some cards offer lower interest rates, while others boast attractive reward programs or cashback options. Doing your research and comparing different cards will help you find the best fit for your lifestyle and spending habits.
Things to consider when choosing a credit card:
- Annual fees
- Interest rates
- Reward programs (cashback, travel, etc.)
- Introductory offers (0% APR, signup bonuses, etc.)
- Customer service
2. Know Your Credit Utilization Ratio
The credit utilization ratio measures the amount of credit you're using compared to your credit limit. Essentially, it's the percentage of your available credit that you've used. Keeping this ratio low — generally below 30% — is crucial for maintaining good credit scores, as it accounts for around 30% of your total credit score.
Ways to lower your credit utilization ratio:
- Pay down debt
- Request an increase in your credit limit
- Track your spending and adjust as needed
- Avoid maxing out your credit card
3. Pay Your Credit Card Bill in Full and On Time
One of the easiest ways to maintain good credit and avoid debt is to pay your credit card bill in full and on time every month. By doing this, you'll avoid interest charges and late fees. Set up automatic payments or calendar reminders to help you stay on top of your due dates.
4. Read the Fine Print and Watch for Changes
It's essential to read and understand the terms and conditions of your credit card. This includes fees, interest rates, and any penalties you may incur for missed payments or going over your credit limit. Be aware that credit card companies can change these terms, so it's important to keep an eye on any notifications or updates.
5. Be Wary of Opening and Closing Accounts Frequently
While it may be tempting to take advantage of introductory offers, opening and closing credit card accounts frequently can hurt your credit score. New credit inquiries and short credit history can lower your score, so it's important to think twice before applying for new cards or closing old ones.
6. Monitor Your Credit Report and Dispute Errors
Regularly reviewing your credit report is crucial for maintaining good credit. Be sure to check for and dispute any errors or signs of identity theft. By law, you're entitled to one free credit report per year from each of the three major credit bureaus (Experian, Equifax, and TransUnion).
Rules For Credit Cards Example:
Meet Sarah, a millennial who loves to travel. She decides to apply for a travel rewards credit card that offers a generous signup bonus and no foreign transaction fees. After researching various cards, she chooses one with a reasonable annual fee and favorable interest rates.
To keep her credit utilization ratio low, Sarah sets spending limits on her new card and avoids maxing it out. She consistently pays her balance in full and on time each month, avoiding interest charges and late fees. By carefully reviewing her credit card statements and tracking her spending, she's able to redeem her travel rewards for flights, accommodations, and more — all while maintaining a healthy credit score.
Credit cards can be a powerful financial tool — but only if used responsibly. By following these essential rules, you'll be well on your way to mastering credit card use and improving your overall financial health. Don't forget to share this article with your friends and check out our other guides at Flik Eco for even more valuable personal finance and investing tips for millennials!
