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Five Rules of Responsible Credit Card Use

Five Rules of Responsible Credit Card Use

By Mitch Strohm • March 18, 2015

Used wisely, credit cards offer a wide range of benefits, such as the ability to earn rewards for your spending habits and to build a credit history that will allow you to qualify for bigger loans (like an auto loan).

But irresponsible use can lead to a spiral of debt that's difficult to dig your way out of.

In July 2014, the average credit card debt of a U.S. household was $7,281, according to an analysis of Federal Reserve statistics and other government data by NerdWallet. That's a 2.41 percent increase from the year prior.

Only mortgage and student loan debt are bigger sources of U.S. household debt, notes NerdWallet.

That makes it crucial to use your credit card conscientiously.

Here are 5 rules for responsible credit card use:

Rule 1: Spend Wisely

We all know it, but it's important to reiterate that credit is not free. You have to pay back what you spend.

In general, you shouldn't use a credit card to make purchases that you can't afford, according to Hal Hershfield, assistant professor of Marketing at UCLA.

"Have a sense of how much money you will have when the bill is due (taking into account rent and other expenses)," notes Hershfield. And don't spend more than that amount.

Rule 2: Pay It Off in Full

If you can, pay off your credit card in full each month.

"The problem with not paying it off in full is that interest rates on credit cards are extremely high, and it's really pretty easy to get into a credit card debt spiral quickly if one doesn't pay off the balance in full," says Hershfield.

Carrying a balance could pile interest on top of what you already owe on your card, resulting in the need to slowly pay off the balance over several years.

And let's not forget that delinquent payments can have a negative impact on your FICO score, according to, the consumer division of FICO.

Rule 3: Use Auto-Pay

By using an auto-pay feature to pay off your monthly credit card balance, you're guaranteeing on-time payment. That means you won't be building interest due to missed payments.

Of course, this is only useful if you're paying attention to the account that's attached to auto-pay.

"It can be problematic if an auto-pay feature is used for a bank account that is not regularly monitored," notes Hershfield.

If you're not monitoring your account, you can easily overdraft and get hit with a penalty from your bank. At the same time, you'd be missing a credit card payment due to lack of funds.

Rule 4: Use Rewards Wisely

There are numerous credit card rewards programs available today, and it's important to find the one that's right for your situation.

Do you travel a lot? Then an airline rewards card might suit you. If you'd rather have cash, consider a cash-back rewards card.

"Take an assessment of where rewards would be most useful, and then sign up for a credit card that operates in that domain," says Hershfield.

Once you have that figured out, Hershfield recommends only spending the rewards once or twice per year.

"Using them to cover a bigger purchase entirely (e.g. a flight somewhere) will feel more rewarding than using a small amount of them several times throughout the year to only lower the price of many purchases," he says.

Rule 5: Check Your Credit Report

It's important to check your credit report for errors. Finding and fixing blemishes on your report can give your score a bump, sometimes a significant one, and lenders look more favorably upon those with excellent credit, according to

By law, you're entitled to one free credit report from each of the three major credit bureaus - Experian, TransUnion and Equifax - per year. You can visit to pick those up.

If you find any indications on your report that negatively affect credit - late payments, very high balances, a large number of open accounts - Hershfield suggests cross-checking to see if any of those indicators seem wrong.

Then contact the credit reporting agency that issued the report to fix any errors.


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