The best way to use a credit card

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In a Nutshell

The best way to use a credit card is by using it only when you need it, and by charging only what you know you can comfortably afford to pay back. When used this way, credit cards can offer a convenient way to pay for day-to-day expenses and may help you build credit, earn rewards, pay off debt or finance a purchase you can pay off over time. But if you’re not careful, a credit card could also lead to high interest charges, increasing debt and a ding to your credit health.

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Credit cards can be a convenient and more secure alternative to using cash or debit to make purchases.

Credit cards can be a useful tool to help you manage your finances and build your credit history. And depending on the credit card you can get, it may offer fraud and purchase protection, and unlike cash, if your card is lost or stolen, it can easily be replaced.

So, what’s the best way to use a credit card? We’ll explore four ways you can use your card: Build credit, earn rewards, pay down debt and finance a purchase. We’ll also give you some tips for using your card so that you can help avoid racking up unnecessary debt or negatively impacting your credit.


1. Using a credit card to build credit

If you’re new to using credit or want to improve a less-than-stellar credit history, getting a credit card may be a good first step for you. There are two types of cards you can apply for: Secured and unsecured.

Secured cards require a deposit, which is often refundable, that’s usually equal to your credit limit and will be used as collateral. Unsecured cards don’t require collateral and are granted based on your creditworthiness. Secured credit cards often have less-stringent application requirements than unsecured cards.

Payment history for both types of cards is typically reported to the three major consumer credit bureaus. Making your payments on time and in full can help you establish a pattern of responsible borrowing and can help you boost your credit, whereas late payments can negatively impact your credit.

What you need to know about the 3 main credit bureaus

2. Earn rewards

Credit cards can be a great way to earn rewards or cash back on purchases you’d be making anyway. There are a variety of rewards cards to choose from, including travel, hotel, airline and cash back cards, to name a few. The type of card that’s right for you will depend on the kind of rewards you want to earn, your lifestyle and your spending habits.

A word of caution if you opt for a rewards or cash back credit card: Several studies — like the ones in the Journal of Research Marketing and the Journal of Experimental Psychology — show that people who pay for their purchases with a credit card often spend more than those who pay with cash. So if you’re going to use a credit card to earn rewards, you should try to only use your card to pay for items you’d normally buy anyway and that you know you can pay off.

Also, many rewards cards have an annual fee. If you won’t earn enough rewards to offset the fee, it probably makes sense to opt for a different type of card. 

3. Pay down debt

Using a credit card for purchases may seem counterintuitive since it’s one of the ways people can accumulate debt. But when used strategically — like to take advantage of an introductory 0% APR for balance transfer offers — a credit card can actually help you pay off debt.

Many credit cards offer balance transfers with low or no interest for an introductory period. If you transfer high-interest debt and pay it off before the promotional period ends, you could save yourself a bundle on interest charges.

If you use a credit card to reduce debt, we don’t recommend making any additional purchases with that card until you pay off the balance in full. Also, watch out for fees. Some credit card issuers charge a balance transfer fee when you transfer your balance from a different card. If possible, try to find a card that offers an intro balance transfer fee.

4. Finance a purchase

For the most part, a credit card isn’t your best bet for financing a purchase, since interest rates are typically high. But a card with an introductory 0% purchase APR can give you an opportunity to pay off a big purchase interest-free. If you’re confident you can pay off the balance in full and before the intro rate ends, using a credit card to finance a purchase may be a good option for you.

Credit Karma Guide to 0% APR on Credit Cards

Just be sure to carefully read the fine print of any credit card you use. Some credit cards offer deferred interest promotions, which means if you don’t pay your balance in full before the offer ends, you could be on the hook for all of the interest that accrued during the promotional period. Other cards may only charge interest on the remaining balance, but it could still add up quickly.

Using credit cards strategically

While a credit card can provide numerous benefits when used strategically, it can also lead to high interest charges, increasing debt and a negative impact on your credit if you’re not careful with how you use it. Here are a few best practices to help you keep your budget and financial health on track.

  • Make your payments on time. Your payment history is one of the major factors that influences your credit. If you make your monthly payments late, it can negatively affect your credit scores, and you’ll likely be charged a late fee.
  • Pay your credit card bill in full and on time each month. Paying off your balance in full and on time can help you avoid incurring high interest charges. If you can’t pay the entire statement balance, pay as much as you can and be sure to make at least the minimum payment on time.
  • Buy only what you can afford to pay for with cash. This can help you avoid overspending and help you stick to your budget each month.
  • Stay well below your credit limit. Your credit utilization ratio — the ratio between the total balance you owe and your total credit limits on all your credit cards — is one of the criteria used to calculate your credit scores. Typically, a low ratio has a favorable impact on credit scores, while a high ratio has a negative impact. Aim to keep your credit utilization ratio below 30%.

Bottom line

There are many benefits to keeping a credit card in your wallet, but there are some risks, too. When used strategically, credit cards can help you establish a solid credit history, earn rewards on everyday purchases, pay off high-interest debt or obtain interest-free financing. The trick to using these benefits while maintaining healthy credit card use is to use them to pay for items you’d buy anyway, pay your bill in full and on time every month, and keep your credit utilization rate low.