using a credit card wisely
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Key Points

  • The average American is over $5,000 in credit card debt.
  • Many American’s are in a mountain of credit card debt because of a lack of knowledge and understanding of how credit cards work.
  • We’ve outlined 11 easy tips you can start today to increase your credit score and prevent getting into credit card debt.

 How’s your relationship with your credit card?

According to TransUnion, the average credit card debt per American is $5,236. That is crazy. It’s evident that most people have no clue how to use a credit card responsibility.

But the question is: do you know how? If not, don’t feel bad. That’s about to change. Today, you’re going to learn about 11 of the smartest ways to use your credit card.

By following these 11 simple tips and tricks, you’ll not only avoid credit card debt, but you’ll also increase your credit score in the process. Let’s begin.

1. Pay credit card balance in full every month

Most people don’t know that carrying a credit card balance is a bad thing. In fact, many people believe that carrying a balance is required to increase your credit score.

This is a lie that’s causing you to pay thousands of extra dollars in interest. The logic behind this belief is that if you pay off your balance too soon, the usage won’t get reported to the credit agencies.

Let’s set the record straight: you don’t need to carry a balance to increase your credit score. But wait, it gets better. You’ll actually improve your credit score if you pay off your credit cards in full each month.

Here’s the deal. When you carry a balance, it means you are getting charged interest. Credit card interest is how credit card companies made over $121 billion in 2019.

You should make it a priority not to get charged interest. Why? I’ll give you an example.

Say you have a credit card balance of $1,000. This is the amount that you owe the credit card issuer. Each month you are making small payments of $100, which means you’ll pay off your debt in about ten months.

However, this also means you are carrying a balance at the end of each billing cycle and getting charged interest. You are literally throwing money into the trash on interest charges.

The average credit card interest rate is around 18%. If you continued making $100 payments each month, you’d also have paid $91.62 in additional interest by the time you paid off your balance.

That’s $91.62 that you could have kept in your pocket.

2. Never pay your bill late

Late fees on credit cards occur when you fail to make the minimum payment on a balance at the end of a billing period. Paying for late fees is equivalent to throwing your money away.

Here’s a case in point:

Say you have a balance of $100, and the minimum payment is $25. If you don’t pay at least $25 toward your balance, you’ll be hit with a late fee charge, which can be as much as $39. Pretty annoying, right?

On top of the late fee, you’ll also put a dent in your credit score. Payment history accounts for 35% of your total credit score.

If your payment history isn’t 100%, then you can bet that your credit score won’t be as high as it could be

To use a credit card wisely means to avoid paying unnecessary fees. Even better, you should always just pay your balance in full and avoid both late fees and interest charges.

One way you can avoid late fees altogether is to set up automatic payments. You can do this either from your credit card app or website.

You can set up automatic payments to have the minimum payment be made before the end of the billing cycle. Doing this will guarantee that you’ll never pay a late fee again.

Keep in mind that if you have a balance, you will still be charged interest. That’s why it’s crucial to always pay off your credit cards in full each month.

3. Avoid maxing out your credit card

Maxing out your credit card can hurt you in several different ways. Let me explain.

For starters, when you max out your credit card, you are using 100% of your credit card utilization (assuming you only have one credit card). Credit card utilization is the amount of credit you are currently using.

For instance, if you have a credit card with a credit line of $1,000 and are using all $1,000 of it, you are at 100% utilization. If you have two credit cards with a total limit of $2,000, your credit utilization would be 50%.

Generally speaking, your credit utilization should never be more than 30%. The lower your utilization, the better your credit score.

Maxing out your credit card is bad because it’s a signal to credit card issuers that you may be struggling financially. As a result, your credit score will take a hit.

Additionally, maxing out your credit card can make it more difficult for you to pay your balance in full. This is especially true if you have a large credit line, such as $5,000 – $10,000.

4. Choose the right credit card

There are a variety of credit cards to choose from, but which is the right for you?

Your credit card should align with your interest and spending habits. For example, if you fly often, you might want to consider a credit card that rewards you with flyer miles.

If you shop at a specific store frequently, such as Target, you may consider getting a Target RedCard that gives you 5% cash back on all purchases.

You don’t want to get a credit card that’s rewards are useless to you.

Using the same example as above, if you only fly once or twice a year, it probably wouldn’t make sense to get a frequent flyer credit card.

You should also avoid using a run of the mill credit card that doesn’t offer any type of reward. If you’re using a credit card, you might as well get rewarded for using it with savings and other perks.

Here’s a full list of different types of credit cards:

  • Cash back credit card
  • Travel rewards credit card
  • Balance transfer credit card
  • Secured credit card
  • Unsecured credit card
  • Store credit card
  • Business credit card
  • Student credit card
  • 0% purchase APR credit card
  • Hotel credit card
  • Airline credit card
  • No annual fee credit card

There are other less common credit cards, but the above-listed cards are the most common.

5. Do not treat your credit card like a loan

There’s a very clear difference between a credit card and a loan. The moment you begin treating both of these as one is the moment you’ll start getting into big credit card trouble.

You take out a loan to buy a car, house, college, or other (very) big-ticket items.

It makes sense to use a loan for these purchases, as they are costlier, but the interest rates are often much lower.  As a result, you aren’t getting buried in debt from high-interest rates.

On the other hand, you use a credit card for everyday purchases, groceries, bills, and other recurring expenses.

These expenses aren’t large enough to use a loan. They’re also small enough to pay off quickly. However, credit cards tend to have very high-interest rates.

As a result, if you are stuck with thousands of dollars in credit card debt, the high-interest rates will eat you alive.

Would you take out a loan to buy groceries? Of course not. Would you buy a home with a credit card? It’s probably impossible.

And even if it were possible, it would be a terrible idea because of a credit card’s high interest rates.

From a technical point of view, a credit card is considered revolving credit. This means you can use the credit over and over up to a set limit, and pay it back periodically.

On the other hand, a loan is considered non-revolving credit. This means you can only use the credit once. After you’ve paid back the loan, you can no longer use the credit.

Credit cards and loans are two completely different financial products—meant for different purposes. And you should use them for their intended purpose.

Use a credit card wisely by not treating it like a loan.

6. Take advantage of credit card rewards

If you have a credit card that doesn’t offer any rewards or perks, you are missing out big.

I’ve personally been using the Citi Double Cash credit card for over five years now. I’ve easily earned over $5,000 in cash during that time because I get 2% cash back on everything. The Citi Double Cash credit card is only one card in a sea of thousands.

There are dozens of different credit cards that you can choose from. Some of the most popular are cash back, frequent flyer, hotel loyalty, and store credit cards.

When selecting a card, you’ll want to choose one that you will actually use. Otherwise, what’s the point? You’ll have a credit card that you aren’t using, and the credit card issuer may potentially close your account due to inactivity. This will in turn lower your credit score.

It’s also very important to mention that while these rewards are awesome, they can become worthless if you aren’t paying your balance in full each month.

For example, say you open a credit card that gives you 2% cash back on all purchases. Excellent, that’s great! However, let’s also say that you are carrying a balance each month.

As you probably know by now, when you carry a balance, you are getting charged interest. And the average interest rate for a credit card is about 18%. So while you are racking up your 2% cash back, you are also racking up 18% in interest. And the last time I checked, 2% minus 18% was 16%.

This means the high interest is completely canceling out the cash back reward. Do you see the problem?

If you are going to use a credit card, be sure to use one with rewards and perks. But more importantly, be sure to pay off your credit card balance in full every month, so that you aren’t losing your rewards on interest.

7. Choose credit cards with extra perks

Using a credit card with rewards such as cash back is great. However, the rewards can get even sweeter.

Some credit cards come with additional perks that extend beyond the base reward.

For example, you may have a credit card that gives you 5% cash back on gas—this is the base reward. That same card may also offer rental car insurance, extended warranties on certain products, and other benefits.

These added benefits are great. And if you can find a credit card that gives you the rewards you want in addition to other perks, you should definitely go for it.

8. Check your credit card statements periodically

I’ll be the first to admit it. It’s beyond easy to swipe your credit card and never think about checking your credit card statements.

Here’s the deal: if you aren’t checking your statements, you may (potentially) be letting money slip through the cracks.

It’s not uncommon for things like fraudulent charges, incorrect charges, and double charges to go unnoticed if you aren’t checking your statements.

Scammers count on you not to check your credit card statements because they can easily steal your hard-earned cash. On top of checking for extra charges, checking your statement also helps to hold you accountable.

Swiping a card takes out most of the emotion of spending money. This is dangerous because it can lead to overspending. However, if you are checking your statements monthly, you can reflect on your spending habits and make adjustments if necessary.

If you are not using your credit card responsibly, you’ll see it on your statement in black and white.

9. Understand how a credit card affects credit score

There are four primary ways credit cards impact your credit score. In some cases, the impact is good, but in other cases, it’s bad.

Let’s go over each one.

  • Applying for credit cards add hard inquiries to your credit report — Hard inquiries stay on your credit report for two years and can bring your score down. This isn’t bad in and of itself. It becomes a problem when you apply for several credit cards all at once. You may see your score drop as much as 100 points and it will take two years for those hard inquiries to disappear.
  • Adding a credit card to your wallet will increase your credit mix — Your credit mix is the mixture of accounts you have, such as loans and credit cards. When you have a variety of credit accounts, lenders see this as a good thing. It shows them that you are responsible and can handle more than one account. In turn, they are willing to give you more credit.
  • Adding a credit card hurts your average age of accounts — Your average age of accounts is a credit score indicator that calculates the average age of all your combined credit accounts. This could be student loans, personal loans, credit cards, and other debts such as auto loans. The higher your average age of accounts, the better. When you open a new credit card account, this brings down your average age which decreases your credit score.
  • Adding a credit card helps your credit utilization — Your credit utilization is the amount of credit you are using. For example, if you have a credit card with a $1,000 credit line and have a balance of $300, your credit utilization would be 30%. The higher your credit utilization, the lower your credit score will go. However, if you add a credit card, you’ll be increasing your overall credit line, which helps decrease your credit utilization.

10. Understand how credit card interest and fees work

Big credit card companies desperately rely on your lack of credit card knowledge. It’s how they make billions of dollars every year.

It’s also the reason why credit card terms are always buried in 20,000 word fine print. Who’s actually going to read that? No one. And that’s how the credit card industry likes it.

If you want to use a credit card wisely, you have to begin reading the fine print. You might be wondering: I have to read all of the fine print? The answer is no. You are only looking for specific items.

For example, when you sign up for a new credit card, the offer might say 0% APR. This means you won’t pay any interest on credit card balances.

Sounds amazing, right? Almost too good to be true? That’s because it’s only partially true. Underneath the pretty 0% APR offer, you’ll likely see something that says see terms and conditions.

When you go and look at what the terms and conditions say about the 0% APR, you’ll quickly realize that it’s only a promotional rate. This rate usually only lasts between 6 and 12 months, before spiking up dramatically.

Some consumers will have credit card balances as much as $10,000. Then, after the 0% APR period ends, they are smacked with a 24.99% interest rate which increases their debt substantially.

Other items in the fine print to look out for include:

  • Expiration date for rewards
  • Foreign transaction fees
  • Fees for additional users
  • Annual fees
  • Cash advance fees
  • Penalty APR

And several other items.

You don’t have to read the entire encyclopedia of fine print when you open a new credit card.  However, it’s smart for you to take a few minutes to look over important items so that you can avoid all the surprises.

11. Understand how credit cards work

You can’t drive a car without first passing driver’s training. In fact, it’s against the law. Before you drive, you must learn how to actually operate a vehicle.

The same should be true for using a credit card. There’s a lot more to that square piece of plastic than you might think. And it would be in your best interest to learn how credit cards actually work before you commit to using one.

For starters, you must learn some of the basic terms of credit cards. Things like APR, grace period, and minimum payment are all very common credit card words that you’ll see everywhere.

If you understand what these things mean, you’ll be able to make more informed credit card decisions.


Far too many American’s are in credit card debt because they aren’t using credit cards wisely. They fail to understand the basics of how to use a credit card properly, and how to stay out of debt.

This doesn’t have to be your reality. Credit cards don’t have to rule over you.

Begin applying these 11 credit card principles to your daily life, and watch how easy credit cards become to manage.

Then you can get all the benefits of a credit card, without all the drawbacks.

About the author

Joshua Mayo is the founder of The Investor Post, runs a self-branded YouTube channel, and is an avid investor and entrepreneur.