Learn About Credit

When and how to use credit responsibly and avoid debt traps.

Tips to Use a Credit Card Wisely

Q: I had trouble paying my credit cards a few years ago, so I started only using cash. I worked hard to get my finances back on track and things are going well again. I figure that in about 3 years I’ll have enough saved for the down payment on a townhouse. However, my banker told me that to qualify for a mortgage, I’ll need to start using credit again. I’ve just received my new credit card but I’m really worried about using it and getting in over my head again. What can I do?

A: Having had trouble with credit in the past can understandably make you a little nervous about getting into debt again. However, credit is a tool, and as with any tool, using it properly will keep you out of harm’s way.  Credit cards can be an easy way to build a credit rating because you only need to use them for a few small purchases each month. Here are some ways to do that:

One Card Is All You Need

Make it a personal rule to only have one credit card with a manageable limit. This will help you keep your spending in line and make it easier to decline other credit card offers.

Avoid Temptation Spending with Planned Purchases

Save up for purchases ahead of time, and don’t “just go shopping” with your credit card. If you don’t have it with you, you won’t be tempted to impulse spend. Use the credit card to make the planned purchases and then pay them off as soon as the bill arrives. You’ll have the money saved, so it’ll be easy to do.

Use an Automatic Spending Limit

Use the card for only one type of purchase, something that has an automatic spending limit, e.g. gas. If you’re still worried that you’ll overspend, don’t use the card for retail purchases. Instead, set up one preauthorized charge that will go through for a set amount each month, e.g. a newspaper subscription or gym membership, and then lock the card up.

Pay It Off Every Month in Full

If you can’t pay the card off in full one month, put it away until it is paid off. Be accountable to a close friend or family member and ask them to help you stick to your plan to keep your card paid off.

You don’t need high credit limits, large purchases and numerous credit cards to establish a positive credit rating. Use the good money skills you’ve learned living without credit to use your new card wisely.

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