How to Responsibly Use a Credit Card | Ion Bank
Using a credit card

Credit cards help establish your credit history. However, raising your credit score depends on making on-time payments and managing the amount of debt you owe. Additionally, not all credit cards are created equal. Many come with high interest rates that increase your balance, while others boast rewards points.

Failing to make the minimum monthly payment on a credit card can negatively impact your credit score. Learn how you can use this financial tool responsibly.

Understand All Terms and Fees

Before you open a new credit card account, review all terms and conditions, including the customer agreement and opening disclosures. Make sure you know what to expect when it comes to fees and interest rates. You should be able to answer the following questions:

  • Does the card involve fees and how often will they be applied? For example, the card may come with an annual fee or charge late fees. Determine if the fees outweigh any cash back benefits and rewards points.
  • Does the card come with an annual percentage rate? Verify the APR in terms of purchases, remaining balance, penalties, cash advances and balance transfers.
  • Can the card only be used domestically? If you can use the card abroad, confirm how much of a fee you’ll be charged for purchases made outside of the U.S.
  • When is your payment due date and what happens if you pay late?
  • Does the card come with a rewards program? Know which types of transactions can earn you points and how to redeem them.
  • Are there any other perks, including travel, warranty or insurance benefits?

Pay Off Your Card Each Month

Aim to pay off the full balance each month, otherwise the amount owed will continue to grow and impact your debt-to-income ratio. You will also pay more interest if carrying a balance on the card. To manage your payments:

  • Never spend more than you can manage each month.
  • Never skip a payment; at least pay the minimum amount.
  • Consider setting up payment reminders or auto-pay.

A balance that’s at least 30 days past due can end up on your credit report. This blemish lowers your score, can affect your loan qualification and remains on your report for seven years. The higher balance also calculates into your interest, so you pay more long term.

Use Your Credit Card for Budgeting

There are several approaches for using your credit card. To maintain a sense of control:

  • Never charge “wants” or big-ticket purchases to your credit card.
  • Know how much you can pay off each month.
  • Strive to use no more than 30 percent of the card balance to avoid negatively impacting your credit score.
  • Set up alerts for potentially fraudulent transactions and to track purchases over a specified dollar amount.

Manage Your Finances

Your credit score is a window into your financial habits. Keep it from dropping low by:

  • Making sure your balance is no more than one-third of the card limit.
  • Being cautious about closing unused accounts, as doing so can increase your credit utilization rate and lower your credit score.
  • Checking your monthly statements for transactions you don’t recognize and alerting your bank if you suspect fraudulent activity.
  • Reporting a lost or stolen card immediately.

Are you thinking about opening a new credit card? Explore your options with Ion Bank!

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