How to use a credit card, responsibly

Credit cards are wonderful tools but they must be used responsibly. Here is your complete guide on things to know and consider.

Why you should use a credit card

Responsible use of a credit card is essential. When used the right way you get:

• Added security and protection against fraud
• Access to money in an emergency
• Convenience
• Rewards / cash back on your purchases

Further, responsible use of a credit card improves your credit score.

How many credit cards you should have

It is appropriate to have two personal credit cards. If you have business expenses, it may make sense to have a third card just for the business. Rarely should you have more than three credit cards. You should not have more than five, including store cards.

What to look for in a credit card

A good card should have:

1. No annual fee
2. At least 1% in cash back or the equivalent or more in rewards
   
3. No limits to rewards

At least one of your cards should have no foreign transaction fees. The difference between a good and a great card can easily be $200 to $1000+ of value per year.

Things you should do with a credit card

1. Focus on credit cards as a way to transact securely. Use it and pay the balance in full at the end of the month. Just because you can carry a balance doesn't mean you should.

2. Keep the same credit card for an extended period of time, at least five years.

   • Switching often is negative for your credit score.
   • Maintaining a single card for a long period of time is positive for your credit score.

Things you should not do with a credit card

1. Don't carry a balance. You should pay off your bill in full every month. When you pay off your card each month, many potential fees do not apply, nor does the interest rate.

2. If you do carry a balance, never borrow more than 50% of your available credit. For example, if your line of credit is $5,000, never borrow more than $2,500. Borrowing a high amount of your available credit will hurt your credit score.

3. Do not transfer balances. When you move money from card to card you are likely hurting your credit score.

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