Top 10 Credit Card Best Practices and how to manage your credit cards
Personal Finance

The Top 10 Credit Card Best Practices – How to Manage Your Credit Cards

Many Americans rack up thousands of dollars in credit card debt each year due to poorly managed credit cards and spending habits.  Pro-actively managing your credit cards is one of the key ingredients to maintaining a healthy credit score.  It is so important to use credit card best practices when managing your credit because if you let your credit cards slip, you can damage your credit score very fast.

Luckily I was aware of these bad habits at an early age and started to educate myself on credit when I was 18 years old.  I got my first credit card when I was 19 and with a plan to start building my credit score.

Over the last 8 years, I put together a list of the top 10 credit card best practices that will help you proactively manage your credit cards and help build your credit score.

Note: This post is for educational purposes only, please speak with a financial advisor for any financial advice! Read full disclosure policy.

The top 10 Credit Card Best Practices

If you are interested in managing your credit pro-actively so you can build your credit score take action on the following credit card best practices and watch your score grow.

1. Do not spend more than you can afford!

This may be obvious but if you treat a credit card as a debit card, you should never carry a balance.  If you don’t have enough money in your checking or savings account and you only have a debit card, then you know you cannot make the purchase.  This same concept applies, if you only have $2,000 in your checking account do not buy a $3,000 tv!

Carrying a balance on a credit card forces you to pay an insane amount of interest and can hurt your overall credit score!

I understand emergencies happen and this is easier said than done.  If you do not have an emergency fund and you’re in a pinch, then you need to do what you need to do.  However, making a purchase for personal pleasure on a credit card with money you do not have is not a good idea…at all.

2. Start early! The longer the average credit length the better

When it comes to a healthy credit score, time is your friend.  It is important to proactively manage your credit cards as early as possible to help build your credit score.

You can open your first credit card when you turn 18.  However, you can get a credit card added to your credit report at an earlier age by becoming an authorized user.  In fact, becoming an authorized user is the quickest way to increase your credit score.

Bottom line, the longer you had credit card account, the better off you are.  If you have the discipline to manage your credit, get started early.  If you have a child under the age of 18 consider adding them as an authorized user to start building their credit (they don’t even have to use the card).

Note: This post contains some affiliate links for your convenience (which means if you make a apply for a credit card after clicking a link I will earn a small commission but it won’t cost you a penny more)! Read my full disclosure policy.

My first credit card was the Discover IT, which is a great starter card.  It is a relatively easy credit card to get approved for the Discover IT credit card but, if you cannot get approved for a credit card for whatever reason, consider applying for a secured credit card.

3. Ensure your credit utilization ratio is below 20%-30%.

A credit utilization ratio is an amount spent divided by your credit limit.

If your credit card limit is $1,000 and at the end of the month your credit statement is $500, your credit utilization is 50% (statement value/credit limit = utilization).

If you really want to improve your credit score you should strive for a credit utilization below 10%.  However, having a credit utilization below 20-30% is sufficient.

Keep in mind you can spend more than 20%-30% of your utilization on your credit card throughout the month, just pay it off before your statement closes.  You want your credit statement to have a utilization of under 10% each month.

4. Never miss a payment!

Payment history has a huge impact on your credit score.  A flawless payment history equals no missed payments, ever!  A simple way to never miss a payment is by setting up auto-pay.

You can easily set up auto-pay through a credit card company’s online portal, you will need your bank’s routing number, as well as your banks, account number.

Once you added your bank account, you can select how much you want to pay each month.  Your options include the following:

  • Pay Statement Balance In Full:
  • Pay Minimum Payment:  
    • Consider only paying the minimum monthly payment, if you are nervous about setting up auto-pay.  It is a baby step into auto-pay and ensures you will never miss a payment.  In the worst case scenario, where you forgot to make a payment, you will not miss it rather pay the minimum amount.
    • You can make additional payments in addition to the minimum payment on auto-pay each month.
  • Other Amount: 
    • You can select other and pay any specific amount you prefer.
    • For example, if you don’t want to pay the total statement each month and you do not want to pay the minimum you can pay $100 each month.

With auto-pay you can make additional payments each month to help pay off your credit card balances.  The goal here is to never miss a payment and setting up auto-pay will ensure you don’t.

What do I do if I miss a payment on my credit card?

Luckily, the credit card companies will not report a missed payment unless it’s past 30 days.

However, If you miss a payment and you’re charged a late fee, pay your balance as soon as possible and then call the credit card company and ask if they can waive the fee.  Nine times out of ten they will refund your money, especially if you sign up for auto-pay and explain that you now signed up for auto-pay to avoid missing payments in the future.

If you need to dispute a missed payment file a claim with the Consumer Protection Financial Bureau at www.cfpb.gov.

5. Pay your credit balance in full each statement.

Never pay interest on your credit cards!  The average interest rate on a credit card is roughly 15%-20%.  If you carry a balance of $1,000 with an interest rate of 15% and you only pay the minimum payment of $25 each month, it will take 4.7 years to pay off the debt plus an additional $397 of interest payments.

If you pay your balance in full each month you will never pay interest in your credit card.

If you have high credit card debt and can’t pay off your balance in full each month then find a credit card that has a 0% interest rate for the first 12-15 months of opening the card and transfer your debt to it.  This will help you save money on interest and get you out of debt much faster.

At the end of the day, paying zero interest on your credit card is the goal.  Paying off your balance in full each month ensures that you will never pay interest.

6. Monitor your credit cards with a budget tracking tool

If you have more than one credit card, consider using a budget tracker tool like www.mint.com.  Taylor and I are Mint users and started using Mint back in 2015.  Since we are heavy travel hackers and use credit cards to rapidly accumulate miles and points to travel for free, we have a lot of credit cards to manage.  When I say a lot I mean over 10 credit cards each!

A tool like mint.com helps us manage which cards currently have a balance and what needs to get paid off.

Even though we use auto-pay for every credit card to ensure we never miss a payment, we use mint to help us monitor our purchases.

For example, if we thought we canceled a subscription or got charged something on an older credit card, we can look at all transactions under one view through Mint instead of logging into 10+ credit card accounts.

Note: Mint also helps with budget tracking and other personal finance tools too!

7. Check your credit score

Major credit card companies, (like American Express, Chase, Citi, or Discover, to name a few) offer a free FICO credit score check service.  This isn’t a one-time free annual report, rather, a simple score checker.  If you have a credit card you can log in to your bank’s online website any day to check your FICO credit score, which is usually updated monthly.

This benefit becomes a true gem when you have a credit card with each major credit card company.  Why?  Well, credit card companies use different credit bureaus.

There are three major credit bureaus, Experian, TransUnion, and Equifax.  Your credit score from each credit bureau are rarely the same, so being able to check your credit score from each credit bureau gives you a complete picture of your 3 FICO scores.

Why is it important to check your credit score often?

Well, you want to check your credit score often to protect yourself from identify theft.  When it comes to credit card best practices, protecting yourself from identity theft this crucial.

If your score significantly drops out of nowhere, then there’s likely a fraudulent cause behind it.  If you do experience a fraudulent activity on your credit report, file a claim with the Consumer Protection Financial Bureau at www.cfpb.gov.

8. Increase your credit limit on your credit cards

Increasing your credit limits on your credit score improves your credit utilization.

Remember tip #3, Ensure your credit utilization is below 20%-30%.  If you increase your credit limit your credit utilization will drop (in a good way), that is assuming you do not change your spending habits.

For example, going back to the example above…

Credit Limit = $1,000 and at the end of the month your credit statement is $500, your credit utilization is 50% (statement value/credit limit = utilization).

You increase your credit limit from $1,000 to $4,000.  You continue to spend $500 each month, your new credit utilization is 25% instead of 50%, which is much better.

Most credit card companies will allow a credit increase without a hard pull credit inquiry.  If a credit card company requires a hard pull credit inquiry to increase your credit limit think twice before doing it.  A hard pull credit inquiry will hurt your credit score initially but will improve over time.

Instead, you could simply apply for a new credit card to increase your overall credit limit across all credit cards.  You will also benefit from a mix of category bonuses, like 5x at gas stations while another card gets 3x at supermarkets, etc).

9. Maximize rewards and cashback

If you have the discipline to treat your credit card as a debit card and never spend more money than you afford than you should always use a credit card instead of your debit card.  Again, ONLY if you’re disciplined.

Why?

Credit cards offer cash back and reward points on every purchase you make using the card.  Each credit card has it’s own category bonuses for specific purchases.  For example, the Discover IT credit card offers 5x cash back on category purchases which change each quarter (gas, supermarkets, online shopping, etc).  If you’re looking for a travel credit card, you can get a card like the World of Hyatt credit card that offers 2 points per dollar at restaurants and travel and 1 point per dollar on all other purchases.

Taylor and I got so good at understanding the cash back and credit card rewards point game, we now travel for free using points and miles when we go on vacation.

10. Spread out credit card applications.

If you are interested in applying for multiple credit cards than it is in your best interest to space out the credit card applications.

I cover this in much more detail in the Travel Hacking Secrets eCourse where I teach you how to become a travel hacker (in 30 days) to start traveling for free.

Spacing your credit card applications every 3 months allows your FICO score enough time to stabilize after the initial hit when you get a credit inquiry from an application.

Another common practice for those who leverage credit cards in a responsible manner uses the “double dip” technique. The double dip strategy involves applying for two cards on the same day in order to avoid multiple hard inquiries.  Each credit card company will do their own credit inquiry on the same day so when they receive the credit report, they do not see the other application request that was simultaneously submitted.

Credit Card Best Practices Summarized

Overall, pro-actively managing your credit cards is one of the best things you can do.  If you apply the 10 credit card best practices to how you manage your credit cards you will watch your credit score increase.

The benefits of high credit scores are endless saving you thousands of dollars in the long run if you were to take a mortgage or another type of loan.  The higher the credit score, the lower the interest rate, and the more money in your pocket.

One last recap on the top 10 credit card best practices:

  1. Do not spend more than you can afford!
  2. Start early! The longer the average credit length the better
  3. Ensure your credit utilization ratio is below 20%-30%.
  4. Never miss a payment!
  5. Pay your credit balance in full each statement.
  6. Monitor your credit cards with a budget tracking tool
  7. Check your credit score
  8. Increase your credit limit on your credit cards
  9. Maximize rewards and cashback
  10. Spread out credit card applications

top 10 credit card best practices and how to manage your credit cards

If you have any questions about the 10 credit card best practices, then please leave a comment below!

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