For many people, managing a credit card is harder than getting one. Any time you use a credit card, you are borrowing money you must repay. If you don't pay your balance in full each month, your creditor will add interest to the total amount you owe.
The Credit CARD Act of 2009 took effect February 22, 2010. Learn more about the new restrictions on credit card fees and interest rate policies.
Here are some tips for using credit cards wisely:
- Get to know all of the responsibilities in owning a credit card. Think very carefully before you decide to get your first card. Is a credit card or borrowing money really necessary, or would another option work just as well?
- If you are under 21 and you receive a credit card offer in the mail, do not feel obligated to accept it. Law does not permit companies to market credit cards to people under 21 years of age unless you have a co-signer or have submitted evidence of your ability to make the payments.
- Choose wisely. When selecting a credit card, be aware of all of the interest rate and repayment options. Compare different cards based on your needs and your ability to pay all purchases in full. Look for the following:
- A low annual percentage rate (APR), which will reduce the interest you have to repay: Beware of low introductory rates that might increase after a period of time (no less than six months).
- The interest calculation method: This can change how much interest you pay.
- Low or no annual fees, which issuers might charge: If the issuer charges an annual fee, ask them to waive it, or do not accept the credit card.
- All other charges (late payment fees, transaction fees, over the limit fees, etc.): These can add to the total cost of your charges.
- Grace periods: Some credit cards charge interest from the day you make charges on your account. Other cards offer a grace period for you to pay your balance before interest begins to accrue.
- Credit limits: In order to maintain reasonable payments, keep your credit limit low (consider a limit of $500 or less).
- Services and features, such as cash rebates, frequent flyer miles, extended warranties, convenience checks, etc.: There may be consequences for the true cost of these programs, especially when you consider interest and other charges.
- Limit the number of cards you get. Having one credit card will help you manage your spending.
- Opt out of interest rate increases. You can “opt out” of any interest rate increase and continue to pay off your balance at the current rate for up to five years. However, you may not charge anything more on that card.
- Don't spend more than you can afford to pay on a monthly basis. Responsible use of your credit cards will help you establish a solid credit rating and avoid financial problems.
- Keep track of your spending. It is important to monitor more often then once per month when you receive your statement.
- Check your account online frequently.
- Save receipts and keep accurate records.
- Maintain a ledger.
- Consider signing up for balance notices and billing statement notifications from your credit card provider.
- Opt out of receiving credit offers, ending the number of prescreened offers for credit you receive. Opting out might reduce temptation to apply for credit you don’t need. Opt out online or call (888) 567-8688.
- Keep an accurate record of the following in case your card is lost or stolen. Keep the information in a secure, safe place at home.
- Account number
- Issuer’s name
- Phone number
- Photo copy of the front and back of the card
- Don’t be afraid to negotiate terms. Ask your creditor to change the contract terms and rates. For example, if you receive a notice of a rate increase, contact the credit and ask to negotiate the rate lower.
- Close a credit card account correctly. Part of your credit score is based on the length of your credit. If you choose to close your credit card, notify the issuer via registered letter and keep a copy of the letter for yourself. (If you cancel a credit card over the phone, it could reduce your credit score 20-30 points.) By documenting your request, you have proof that you chose to close the account, not the issuer (for example, due to bad credit).
Other options to consider:
- Debit cards draw funds from your checking account rather than borrowing money for each transaction.
- Consider sharing a card with your parents. You can share the responsibility of monitoring spending.
- Take some time to make the decision. Wait to obtain a credit card for six months or a year to see if your expenses are manageable without one.