You may have hesitation around opening and using a credit card and that is completely justifiable – it can be seen as a gateway to spiraling debt – and for some, that’s enough to justify reaching for a debit card or for cash instead.
Being debt-conscious isn’t inherently bad – in fact, being able to see past the convenience of credit cards to their potential pitfalls is a responsible perspective to have. Credit card transactions are essentially mini-loans that can lead to serious debt when used carelessly, but avoiding them altogether is also problematic – and not just for the credit card companies who issue them. An aversion to credit cards can negatively impact future financial and lifestyle decisions.
The Consequence of Being Credit Card-Shy
Credit card use plays a huge role in contributing to your credit history, which in turn is an
important part of your financial footprint. Avoiding credit cards won’t actively damage your credit rating, but it can hold you back from achieving the types of credit scores needed for:
- Lending funds for major purchases, such as vehicles or homes
- Securing a loan for a small business or a future entrepreneurial venture
- Employment or renting, as some may check your credit as part of the application process
While it’s possible to build your credit score with other borrowing products such as student loans or personal lines of credit, credit cards are the easiest way to boost your credit score because of their accessibility. When used responsibly, credit cards can build a positive credit history with little or no cost to you.
Using Credit Cards Responsibly
The only way to sidestep any and all credit card-related fears is to follow this strategy:
- DO pay your credit card bill in full and on time:
- so you do not carry a balance, therefore cannot be charged interest
- to protect you from being charged late fees and other penalties
- to keep the cost of having a credit card down (depending on the issuer and the type of card, you may only have an annual fee for your card)
- to have worry-free enjoyment of the perks and rewards that your card may come with
- DO only use it to pay bills and make purchases that you can cover with money that you already have in your bank account and budget and know you can afford
- DON’T treat it as additional available income
- DON’T use it to fill the gaps when your paycheck isn’t quite covering everything you want it to
Your Guide to Paying in Full and On Time
Paying in full and on time is a simple rule to remember, but there are a couple of things you need to be aware of in order to follow it successfully. Use the following questions as a guide to using your credit card with confidence.
- Do you currently have credit card debt?
If the answer is no, carry on to the next question! If the answer is yes, you must develop a debt repayment strategy right away. If you need help devising a plan, reach out to your credit union for available resources.
- Do you know when your billing cycle opens and closes?
It’s important that you understand the billing cycle for each credit card you own. It’s easy to assume that billing cycles are monthly, but in fact they vary depending on the card issuer and can range between 20 and 45 days. Your credit card statement will disclose when your billing cycle opens and closes—take a minute to look at your last few statements and determine where your billing cycle starts and ends.
- Does it start on the first day of each month?
- Does it start mid-month?
- Does it close on the same date each month, or does it vary?
- Do you know your personal payment due date?
Your credit card statement will clearly list your payment due date, but in order to dodge any late fees, you also need to allow time for your payment to process. For each credit card that you use, figure out what your personal payment due date is—that is, the day by which you must pay your bill in order for your funds to transfer in time. It’s a good idea to leave a buffer of a week or more before the due date printed on your statement.
- Do you have an emergency fund?
When an emergency expense suddenly pops up, it’s easy to reach for your credit card
in response. A large emergency expense can prevent you from paying your balance in
full and on time and derail your good credit habits. The best defense is to have savings set aside to minimize your reliance on your credit card. The regular recommendation is six months’ worth of expenses, but if you’re just starting out, set smaller $500 milestone goals.
A little bit of knowledge and self-discipline is all it takes to successfully use the “pay it in full and on time” strategy. This approach allows you to fully enjoy the convenience and rewards of your credit card while contributing to a positive credit history that will serve you well when it comes time to make a large purchase. There’s no need to be shy when using your credit card responsibly.