How To Use a Credit Card: Your Guide

Cropped shot of a handsome young man using a smartphone and a credit card to shop online while sitting on his couch at home.
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Whether you are new to the world of credit cards or have been using them your entire life, there are likely some questions you have about how exactly they operate. As simple as these questions might seem, they’re important to fully understand, because improperly using a credit card can cost you more than money. Here’s a simple overview of how credit cards work and what you should watch out for in terms of using them properly.

How Do Credit Cards Work?

A credit card is essentially a short-term loan you take out from a bank. If you pay it back before the grace period ends, which is usually about 20 days after your statement comes out, you won’t have to pay any interest. However, if you extend the loan longer than the grace period, the bank will start charging you interest. 

How To Use a Credit Card: Key Takeaways

  • The best way to build or improve your credit history is by consistently using your credit card and paying off your bill on time.
  • How you use your credit card directly affects your credit score.
  • Credit cards essentially allow you to borrow money in the short term, which you then repay by the due date of the next billing period.
  • Pay periods, grace periods and interest charges of the credit card issuer are important factors for understanding and managing the costs of using and building credit with a credit card.
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Tips for Using a Credit Card Responsibly

Proper use of a credit card can be convenient, provide great rewards and help build a healthy credit profile over time. But it’s important to use credit cards responsibly, as they can lead to financial difficulties if not managed properly. Here are some quick tips to help keep your credit card use in line:

  1. Spend what you can afford.
  2. Pay off your balances.
  3. Don’t close old accounts.
  4. Don’t settle for high-fee cards.
  5. Set up automatic payments.

1. Spend What You Can Afford 

Only spend what you can afford to pay off. The interest you pay on your credit card bill only becomes an issue when it goes unpaid. The amount of interest your card issuer charges is up to them and it can vary, although they have to disclose it to you. 

Charges accrue on balances that are unpaid after the grace period expires. Since the grace period usually runs about 20 days after your statement date, you might not have to pay off any charges you make on the card for 40 days or more from the date you make them.

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2. Pay Off Your Balances 

Even if you can’t pay all your balances in full, pay off as much as you can to keep your balances low. You aren’t required to pay off your full credit card balance when you receive your statement, but you are responsible for paying at least some of it. Credit card companies usually refer to this amount as the minimum balance due.

When paying your bill, if you don’t pay at least the minimum due, your card issuer will report your payment as late, and you’ll get dinged on your credit report. Additionally, you’ll be assessed a late fee, and your card interest rate can skyrocket to a so-called “penalty rate,” which often approaches 30%. 

3. Don’t Close Old Accounts 

Don’t close old accounts, unless you never use them and they charge an annual fee. The age of your accounts can help boost your credit score. Improving your credit history goes a long way toward things such as securing loans or improving your FICO score. 

4. Don’t Settle For High-Fee Cards 

Remember that you can choose which card accounts you open, so find those with the features and benefits most applicable to your lifestyle and don’t settle for high-fee, high-APY cards. In addition to interest rates on unpaid balances, some credit cards charge an annual fee. 

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Typically, cards charging a fee provide additional features and benefits, such as rewards points, free baggage and lounge passes on airlines or points multipliers for spending in certain categories, such as groceries or streaming services. You’ll have to do your own math to see if the rewards you receive outweigh the cost of owning these types of cards. 

5. Set Up Automatic Payments 

Though you do need to be aware of the timing of your automatic payments to ensure you have the money in your account, setting these up takes away the human error of forgetting to pay your bills.  Whether it is a balance transfer or direct deposit from a bank account, paying your bill consistently on time will do wonders for your credit score.

How To Use a Credit Card To Build Credit

If you are the primary or authorized user of a credit card, it is important to know how to use it. Responsible use of a credit card over time can be a tremendous help to raising your credit score. 

The largest single component of the industry-standard FICO credit score is your payment history, meaning the longer you can make on-time payments, the higher your score should go. Keeping your outstanding balances low will also serve to boost your credit score. 

Final Take

The bottom line is that credit cards can provide you with lucrative rewards and help make your financial life easier to manage. But overspending or neglecting your payment terms could lead to spiraling interest costs and even bankruptcy if you can’t keep up with your rising balances. 


Here are the answers to some of the most frequently asked questions regarding credit cards.
  • How do you properly use a credit card?
    • Here are five tips for properly using your credit card:
      • -Spend what you can afford.
      • -Pay off your balances.
      • -Don't close old accounts.
      • -Don't settle for high-fee cards.
      • -Set up automatic payments.
  • What is 30% of a $500 credit limit?
    • 30% of a $500 credit limit is $150.
  • Should you pay off your credit card after every purchase?
    • There is no need to pay off your credit card after each purchase. As long as you pay the minimum amount due each billing cycle your credit will improve and you'll avoid paying interest.

John Csiszar contributed to the reporting for this article.

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About the Author

Caitlyn Moorhead has written content for a variety of businesses and publications. After graduating from Central Michigan University cum laude, she moved to New York City where she wrote columns, articles and plays for several years before relocating to Austin, Texas in the fall of 2020.
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