Avoid using credit cards for expenses that charge high transaction fees (rent, mortgage, taxes), cash-equivalent transactions (money orders, gambling), or items you cannot pay off within one billing cycle to avoid high-interest debt. Prioritize using cash or debit for emergencies, impulsive purchases, or large, long-term debts.
Purchases you should avoid putting on your credit card
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You generally want to avoid putting anything on your credit card that you cannot pay off within one billing cycle. Putting recurring expenses, like your mortgage and utilities, on a credit card may make it harder to get a clear picture of your finances and follow a monthly budget.
The 2/3/4 rule is a guideline, primarily used by Bank of America, that limits how many new credit cards you can get: no more than 2 in 30 days, 3 in 12 months, and 4 in 24 months, helping to prevent over-application and manage hard inquiries on your credit report. While not universal, it's a useful benchmark for responsible card application, though other banks have different rules (like Chase's 5/24 rule).
When using a credit card, remember the golden rule: only spend what you can afford to pay off in full each month. Carrying a balance leads to interest charges that can grow quickly. Paying off your statement balance each billing cycle keeps your costs down and your credit score in good shape.
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The 15/3 credit card payment method is a strategy to potentially boost your credit score by making two payments per billing cycle: one about 15 days before your statement closes (to lower reported utilization) and another around 3 days before the payment due date (to cover the rest and avoid late fees), though its actual impact on credit scoring is debated. It works by keeping your reported balance lower when the card issuer reports to bureaus, but experts note the specific timing isn't magical, and focusing on the reporting date is key.
Using 90% of your credit limit creates a very high credit utilization ratio, which significantly hurts your credit score by signaling high risk to lenders, though you won't "overdraw" it like a bank account; it can also lead to higher interest rates (Penalty APRs), so it's best to keep utilization below 30%, ideally even lower, by paying down balances.
Using a credit card without a budget is another way you could end up in debt. A good budget should honestly reflect your income and expenses so you can keep tabs on your spending. This is easier to stick to if you pay for things with cash and debit.
Here are five common debt traps to look out for—and how to steer clear of them.
Using a credit card to pay monthly bills for household essentials such as electricity, gas, water, cell phone bill, and subscription services can offer several advantages. Since you really can't do without these things, you should have a budget that covers all of them.
Top purchases to make with a credit card
By making expensive purchases with credit you can pay for whatever it is you buy retrospectively over time. Buying flights and holidays using a credit card can be a good idea for the same reasons that apply to any other big one-off payments.
Paying your credit card twice a month is good because it allows you to check in with your spending and get ahead of your bills. If you're carrying credit card debt, making a credit card payment every other week could also save you money on interest.
The 2/3/4 rule: According to this rule, applicants are limited to two new cards in 30 days, three new cards in 12 months and four new cards in 24 months. The six-month or one-year rule: Some credit card issuers may let borrowers open a new credit card account only once every six months or once a year.
9 Smart Ways to Use Your Credit Card
Here are the potential risks and how to avoid them:
Overpaying your credit card bill by a small sum will result in a negative balance on your account, but usually nothing more. However, overpaying by a significant amount may be a fraud trigger for your issuer. Sometimes overpayment of large sums can be the result of mistakenly adding an extra zero to your payment.