Americans have an $887 billion credit card balance. According to the Federal Reserve Bank of New York, the country charged $46 billion more this year than last, the biggest year-over-year increase in two decades.
A lot of that debt is held by responsible cardholders who make their purchases strategically, within their budgets and in pursuit of rewards that pay them back. Unfortunately, much of it was also charged recklessly by people who view their credit lines as extra money that gives them more buying power than their income affords them. Instead of perks and benefits, their credit card experience will leave them saddled with debt and struggling to borrow.
Cutting up your credit cards is not the solution. The solution is to look for the following signs that you’re managing your credit cards wisely — and to make quick changes if these six scenarios don’t apply to you.
You Have a Credit Score That Doesn’t Scare Lenders
Your credit score reflects more than just your credit card accounts, but if you’re using your cards irresponsibly, you can bet that your number will drop. According to Credit Karma, there are dozens of scoring models that weigh certain factors differently. But the two most common models are FICO and VantageScore, the latter of which just updated from its 3.0 model to 4.0.
Both go up to 850, but FICO starts at 580 as opposed to VantageScore, which starts at under 500.
- A good VantageScore is 661-780
- A good FICO score is 670-739
Good is the tier in the middle, and it should be your floor if you’re using your cards responsibly. If not, you’ll drop down to the fair or poor tiers. The cheapest loans and best credit cards are reserved for the next two tiers up, which are very good and excellent — those should be your target ranges.
You’re Not Paying Interest
After your credit score, the next best indicator of responsible card management is a lack of finance charges. You don’t pay interest on your purchases if you pay your statement balance in full every month.
But if you’re carrying a revolving balance, the unpaid portion carries over to the next month and your debt grows as interest compounds. If you’re doing that, it’s probably because you’re spending more than you can afford.
Those who charge no more than they can cover in a given month avoid the quicksand of revolving debt, pay the bank nothing and collect lucrative benefits that reward their responsible card use.
Your Rewards Are Adding Up
A side effect of carrying a balance is that the finance charges you incur quickly negate any rewards you earn. But if you’re using your cards responsibly and paying your entire statement balance every month, you should be racking up points, cash back, miles or other rewards that convert to tangible benefits.
Some people let their cash back accumulate so they can use it to buy holiday gifts. Others grow their rewards to cover a statement balance. Others use their travel cards to bank miles to fly for free on their next vacation.
No matter your preference, rewards are the fun part of credit cards — but they’re only for people who charge responsibly.
You Have Lots of Open Credit
The more responsibly you use your cards, the more credit your lenders will extend you. Ideally, your credit limits will increase but your spending won’t, and over time, you’ll have more and more unused open credit at your disposal.
It’s called your credit utilization ratio, and it has a big impact on both your credit score and your borrowing power. Lenders like to see that you’re using less than 30% of your available credit. Lower is always better, but don’t let a card sit unused. If a card idles at zero for too long, the issuer might cancel an unused card and close the account — and you lose all of that card’s available credit.
Your Monthly Statement Isn’t a Surprise
When you pay with cash, you can physically see your money disappearing. When you swipe a debit card, you see your checking account balance shrink.
But since credit card payments are delayed by a month, it’s easy to view money spent as IOUs that are somehow less consequential than cash. That mindset leads to absent-minded charging and, eventually, overspending.
Your monthly credit card statement shouldn’t be a surprise. It should simply confirm the spending and purchases that you’ve been budgeting for and tracking as you go.
You Pay on Time, Every Time
The single most important hallmark of responsible credit card use — and the factor that represents the biggest chunk of your credit score — is timely payments. A single missed payment can crush your credit rating and raise a big red flag to any lender who’s considering extending you credit or issuing you a loan.
Ideally, you’ll always pay your statement balance in full, but even if you hit a rough patch and can make only the minimum payment, responsible credit card users never let a billing cycle pass without keeping the wolves at bay.
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