Best Way to Use a Credit Card

The best way to use a credit card is to make purchases you can afford and then pay your full statement balance by the due date each month. Using a credit card this way will help you build credit, avoid paying interest charges, and save as much as possible via rewards and other benefits.

In order to use a credit card in the first place, you need to apply for an account and get approved, or ask a family member to make you an authorized user. Once you get a card, you can use it to pay for purchases in person by inserting it or tapping it at checkout, or use it online or over the phone by providing the card number, expiration date and security code.

Key Things to Know About Using a Credit Card

• You should always make at least your minimum monthly payment by the due date to avoid late fees and credit score damage.
• To avoid interest, pay your statement balance in full each month.
• It’s important to keep your credit utilization low, so try to use less than 30% of your card’s credit limit.
• You should avoid cash advances unless you’re in an emergency situation because they come with expensive fees and interest that starts accruing right away.
• Using your card for a balance transfer is usually good only if you have a 0% intro APR.
• Avoid using your card for purchases from foreign merchants if the card has a foreign transaction fee.
• Monitoring your monthly statements and your credit reports is important. That way, you can catch and report any fraud. All major credit cards offer $0 liability for fraudulent purchases.
• Make sure you know about a card’s rates, fees, rewards, supplemental benefits and approval requirements before you apply.

Even if you don’t use your credit card, the issuer will still report positive information to the credit bureaus if you’re current on payments.

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How to Use a Credit Card to Make Purchases

Using a credit card to make purchases is a quick and easy process, but the steps differ a bit depending on whether you’re buying something in person, online or over the phone. We’ll break down the steps below.

1. Choose the items or services you want to purchase: Select the products or services you wish to buy from a merchant. You can do this in-store, online or over the phone.
2. Proceed to check out: If you are shopping in-store, take your selected items to the cashier or designated checkout area. If you are shopping online, add the items to your virtual shopping cart and click the button to check out.
3. Provide your credit card information: If you are in a store, you can insert your credit card into the card reader or tap it if your card is capable of making contactless payments and the merchant’s terminal is equipped for it. You may then be asked to provide a signature or a PIN, depending on the type of card you have. If you are paying online, you will need to fill in the card number, the expiration date and your name as it appears on the card. You will also need to provide the card’s security code.
4. Confirm the purchase: Review the purchase details, including the total amount to be charged to your credit card. Ensure that all the information is accurate. Then, finalize the transaction.
5. Obtain a receipt: After the transaction is approved, you will typically receive a confirmation or receipt. If shopping in-store, the cashier may provide you with a physical receipt or send one by email. If shopping online, the receipt may be displayed on the screen or sent to your email. Take a look at the receipt to make sure the amount printed on it matches what you expected to pay.
6. Keep track of your purchases: It's important to keep track of your credit card purchases so you can monitor your spending and ensure accuracy. You can do this by reviewing your credit card statements regularly or accessing your account online. You can also use the budgeting tools included with WalletHub Premium to automatically sync your purchases to your WalletHub account and track your spending.

How to Use a Credit Card to Build Credit

A credit card is one of the best tools for building credit, but you have to use it responsibly. There are several things you need to do in order to properly use a credit card and build a good credit score.

1. Make timely payments. Pay at least the minimum amount due on time every month. Consistently paying your bills by the due date demonstrates responsible credit behavior and helps establish a positive payment history, which is the most important ingredient in your credit score.
2. Pay in full. You should always strive to pay your credit card bill in full each month, if possible. This will help you avoid interest, as well as build your credit score faster than if you only paid the minimum.
3. Keep your credit utilization low. Credit utilization refers to the percentage of your credit limit that you're currently using. Aim to keep your credit utilization below 30% of your credit limit. For example, if your credit limit is $1,000, try to keep your statement balance below $300. Low credit utilization shows lenders that you can manage credit responsibly and aren’t desperate to borrow.
4. Avoid cash advances. A cash advance is when you use your credit card to get money from an ATM or bank teller. However, this comes with expensive fees, as well as interest that starts accruing immediately at a high APR.
5. Avoid excessive credit applications. Applying for multiple credit cards within a short period can negatively impact your credit. Each application typically results in a hard inquiry on your credit report, which can drop your credit score by around 5 points. Multiple applications in a short period of time can add up, so it’s best to wait at least 6 months between applications to give your score time to recover.
6. Monitor your credit card statements. Regularly review your credit card statements to ensure accuracy and detect any unauthorized charges. Monitoring your statements helps you stay on top of your spending and identify any discrepancies promptly.
7. Check your credit reports. Regularly review your credit reports from the major credit bureaus (Equifax, Experian, and TransUnion) so you can identify and dispute any errors or inaccuracies that could potentially harm your credit. You are entitled to a free credit report from each bureau every week. You can also check your TransUnion credit report for free, as well as get free daily updates to your credit score, on WalletHub. WalletHub offers free 24/7 credit monitoring, too.
8. Be patient and consistent. Building credit takes time, so be patient and maintain responsible credit habits consistently. Over time, as you demonstrate responsible credit behavior, your credit score should gradually improve.

Remember that responsible credit card use is just one aspect of building good credit. It's also important to manage any loans or lines of credit responsibly, as well as continue to meet your other financial obligations. By using credit responsibly and making sound financial decisions overall, you can build a positive credit history and improve your creditworthiness.

You can join WalletHub for free to get daily updates to your credit report and credit score, as well as personalized advice on how to improve. You can also check out our guide on how to build credit with a credit card to learn more.

How to Use a Credit Card for a Balance Transfer

To use a credit card for a balance transfer, start by researching cards with favorable balance transfer offers, such as a 0% introductory APR. Also, pay attention to any balance transfer fees that may apply, which are usually 3% to 5% of the transferred amount.

When you choose a card and apply for it, give the card’s issuer the details of the account with the balance you want to transfer. If you’re approved, they will initiate the transfer, moving the balance to your new card. You can also request a transfer after you already have the card, but requesting it on the application speeds up the process.

Once the balance is transferred, create a repayment plan to pay off the balance within the promotional period to avoid accruing interest. You can use a balance transfer calculator to help you figure out how much to pay each month. Then, make regular payments and avoid making new purchases on the card so you can focus on reducing the transferred balance.

How to Use a Credit Card for a Cash Advance

To use a credit card for a cash advance:

1. Follow your credit card company’s instructions to create a PIN if you don’t have one.
2. Locate an ATM that accepts your credit card or visit a bank.
3. Insert your card, enter your PIN, select "cash advance," and enter the desired amount.
4. Collect your money.

Be aware of cash advance fees (credit cards charge an average of 4.02%) and any ATM owner fees that may apply (usually a few dollars at most).

Interest on cash advances starts accruing immediately at a rate that’s usually higher than your regular APR (24.83% on average), so pay off the balance as soon as possible. Since cash advances are an expensive way to borrow money, you should only use them as a last resort.

How to Use a Credit Card to Earn Rewards

To earn rewards with a credit card, start by choosing a rewards card that aligns with your preferences and spending habits. A rewards card may offer cash back, points or miles. It may also offer a flat rate on all purchases, or may offer bonus rewards in particular spending categories such as travel, dining or groceries.

Once you have a rewards credit card, use it for everyday purchases and take advantage of bonus categories or promotions for additional rewards. Pay your balance in full each month to avoid interest charges and avoid diluting your rewards.

Then, monitor your rewards balance and redeem what you earn for cash back, travel, gift cards, merchandise, or other eligible options. In doing so, be aware of any expiration dates or restrictions on the rewards. Also, try to redeem your rewards frequently to avoid the possibility of your issuer devaluing them.

Finally, you can maximize your earning potential by staying updated on cardholder offers and utilizing companion benefits or partner programs when available. For example, you may be able to transfer your rewards to various airline or hotel rewards programs, where they could be worth more.

Mistakes to Avoid When Using a Credit Card

There are plenty of mistakes you can make while using a credit card that can cost you money, hurt your credit score or both. Fortunately, many of these mistakes are easy to avoid if you know about them in advance.

1. Using the wrong credit card: It’s important to consider all of your needs before applying for a credit card. You should apply for a card that fits your spending habits, is obtainable with your current credit score, and won’t cost you more than the value you get out of it. You can learn more about how to choose a credit card here on WalletHub.
2. Applying for multiple cards at once: When you apply for a credit card, it triggers a hard inquiry on your credit report that typically drops your score by around 5 points. When you apply for multiple cards within a short period of time, that credit score damage can compound and create a larger drop that is a red flag to issuers.
3. Using too much of your credit limit: The amount of your credit limit that you use is called your “credit utilization,” and it’s a major component of your credit score. You should ideally use less than 30% of your credit limit, and 1% to 10% is best for your credit score.
4. Not paying on time: Not paying your credit card bill on time can lead to late fees and expensive interest charges, as well as credit score damage. You should always make at least the minimum required payment by your due date, but it’s better for your credit score if you always pay in full. You can avoid interest by paying in full, too.
5. Making a cash advance: A cash advance lets you get cash at an ATM or bank using your credit card. However, it comes with an expensive fee and high interest that starts accruing right away. You should only do a cash advance in an emergency situation.
6. Not checking your credit card statements: It’s important to go over your credit card statements at least monthly in order to catch any potentially fraudulent purchases. If you find purchases you didn’t authorize, you should dispute them immediately.

You can learn more about the mistakes to avoid when using a credit card here on WalletHub.