Credit cards can be powerful financial tools when used wisely. They can help a person take advantage of opportunities, provide emergency funds, and help build a sound credit history. On the other hand, recklessly using credit cards can cause serious problems. Accumulating excessive credit card debt can hurt your credit rating, put you in a difficult financial position, and create unnecessary stress and strain on you and your family. Learning how to use and manage credit cards wisely is an important aspect of developing a healthy relationship with money.

Choose Credit Cards Carefully

It's a good idea to research the terms, conditions, interest rates, and other fees of all financial products, including credit cards. These factors vary greatly from one card to another. Always look for a card that offers the lowest interest rate as a starting point. It's also important to note whether there’s an annual fee associated with the card and any rewards, like travel points or cash back, that might offset the fee.

Always Make Payments on Time

Skipping a credit card payment is never a good idea as it will trigger additional fees, increase the card's interest rate, and hurt your credit score. Make at least the minimum payment due to avoid these problems and keep the card in good standing. Keep in mind, however, that making the minimum payment means the balance won't go down quickly and interest will be charged on the balance every month. The best practice is to pay off your balance by the end of each billing cycle.

If you have trouble remembering to make your payments on time, set up automatic payments, either through your bank or your credit card provider. If you’re not comfortable with automatic payments, there are plenty of apps you can use to schedule payment reminders.

Keep Your Credit Utilization Ratio in Check

If you want to improve your credit score, keep your credit utilization ratio at or below 30%. This ratio is the amount of revolving credit (like credit cards) you’re using compared to your total credit limit. It considers both your overall ratio and your ratio per each card. Your credit utilization ratio is calculated throughout the month, so consider making multiple payments during your billing cycle to keep your ratio as low as possible. People with the highest credit scores keep their ratio at or below 10%.

Don't Apply for Too Many Credit Cards

Building a good credit card history is a wise idea, but it can also lead a person down the road to temptation. Credit card companies are relentless in their marketing, and they'll do everything they can to get you to sign up. The only reason to apply for a new credit card is if it makes good financial sense, not to get a free gift or a discounted shopping trip. Applying for too many credit cards in a short time will trigger a negative hit on your credit report.

Prioritize Credit Card Spending

It’s easy to think of a credit card in the same way as a debit card or cash, but that mindset can lead to financial trouble. Your bank account and cash are money you already have to spend, whereas a credit card balance is a debt you’ll have to repay – with interest. The best way to prioritize credit card spending is to use it for necessary expenses, like groceries or utilities, and to pay the balance off by the end of the billing period. Using credit cards for discretionary items, like theater tickets, should only be done if it fits into your budget.

Having a credit card, or two, is a good way to build credit, provide emergency funds, and make life a little more comfortable. Learning how to use and manage credit cards wisely is a good way to stay out of financial trouble. Doing so requires that a person look at the details of any credit card offer, make their payments on time, and doesn't apply for more cards than they need. Above all, it's important to be careful about how credit cards are used by prioritizing needs over wants.