How to use a credit card: 6 best practices of credit card usage from the money-savvy

A credit card is a helpful financial tool. Paying consistently and on time can boost your credit rating and offer you rewards for purchases. However, if your credit spending gets out of control, interest payments can pile up and monthly payments can become a problem.

Managing credit cards and how to responsibly use a credit card to your advantage is very important to understand. Below are some tips on how to become more financially responsible with your money, by knowing these credit card best practices.

Who should get a credit card?

Credit cards can be a usefull financial tool for many individuals, particularly those seeking to establish a credit history, travel frequently, or shop online. Credit cards offer a range of benefits, including rewards points, purchase protection, and fraud liability coverage. However, it's important to also understand how to use credit cards responsibly. If you have a history of overspending or have difficulty managing your finances, a credit card might not be the most suitable option for you.

A credit card is a huge responsibility, so you need to carefully assess if you should get a credit card. Consider your spending habits, income, ability to make timely payments, and your capacity to pay.

How to use a credit card responsibly

Track your credit card spending

Money-savvy people track everything they spend on. They track expenses in different ways, using methods that work for them. One effective method involves categorizing the way you spend based on your habits and lifestyle. Organize your credit card expenses into categories, for example utilities, groceries, gas, meals, travels, and shopping.

Set aside a little time to analyze your spending habits. You might find you’re spending more on shopping and your expensive coffee habit. You could use this money to start a travel fund or you can set the extra money for your retirement.

Another easy way to track and manage credit card spending is not to spread it across too many credit cards. Don’t go overboard by managing more than two or three credit cards. Having less credit cards lets you maximize their benefits while keeping your balances at a manageable level.

Scrutinize your bill

Money-savvy people study their bill carefully. They check how much is due and when the payment is due. They run down all items, preferably with receipts to match. With a lot of online fraud going on, you should be on the lookout for anomalous transactions and accidental double credit card entries from, say, your supermarket or department store.

It is important to scrutinize your bill as soon as you receive it. If you see something that’s not right, report it right away to your bank’s credit card hotline. If you have to file a dispute, file it right away. Don’t wait.

Pay off your credit card debt in full, all the time

This one’s simple but remains one of the best practices for managing credit cards. Money-savvy people pay off their credit card bill in full every month. Otherwise, they end up paying more because of interest.

Credit card purchases (except installment purchases) are short-term loans extended to you by the credit card issuing bank. You will be billed after one credit card cycle, which is about 21 days after your monthly cut-off date. If you miss the payment due date, you will have to pay late and finance charges. It will also have a negative impact on your credit score.

Yearly credit card interest rates can take a huge bite out of your savings if you don’t rein in unnecessary credit card spending. The Philippines’ Central Bank issued an annual cap of 24% on credit card interest rates in November of 2020, but prior to this, credit card interest rates could run up to 36 or even 47% a year.

The solution? Pay your credit card in full when the deadline comes around. When making a big purchase, ask if you can get a 0% installment deal, and take it if they do, but commit to the monthly payments. Track your expenses religiously as you continue paying in full.

You shouldn’t spend more than your preset monthly budget for regular expenses and disposable items. If your credit card bill starts ballooning to unmanageable levels, it’s time to review your expenses and pay for everything in cash or via debit card. If you need further help with responsible credit card management, we have an article on the best tips for using and managing your credit card.

Pay on time, all the time

Paying on time, all the time is a sacred rule of responsible credit card management. If you cannot pay your dues in full, then pay for what you can by the deadline.

If you scrutinize your bill regularly, you know what comes if you don’t pay on time. You’ll get a late charge fee (which is calculated as a flat fee or as a percentage of your bill, depending on the bank), as well as a finance fee. The late charge fee applies even if you’re just one day late, so you’ll always pay a late fee together with the finance fee.

What’s worse is if you start missing credit card payments, you’re going to hurt your credit score, which in the Philippines is tracked by the Credit Information Corporation. Your credit score is calculated based on your timely payments for utilities such as PLDT, Meralco, and your mobile phone bill, as well as any outstanding loans you have on record.

A low credit score hurts your ability to raise your credit limit, which is important for managing larger purchases and potential emergencies. A low credit score also impacts your approval for any kind of loan. You don’t want to waste your earnings and savings on unnecessary fees, and you don’t want to hurt your credit score, either. So make sure your credit card payment habits include paying on or before the deadline.

Maximize the credit card benefits

There are many credit card products with various offers. If you’re a careful and responsible credit card user, you could be maximizing your credit card’s benefits in no time with no additional expense.

Credit card benefits vary according to the card you choose. Here are some examples:

• Rewards points based on credit card usage
  
• Rebates on your gasoline bill or discounts on car maintenance and accessories
  
• Air miles based on overall spend, as well as airline and hotel spend
  
• Free or discounted access to airport lounges, travel insurance coverage, and other travel offers
  
• Cashback promos and gift checks
  
• Concierge service and increased rewards points for hotel stays, hospital bills, and online purchases
  
• Waived yearly membership fees based on accumulated spend
  

Credit card brands also offer special wellness, travel, shopping, and dining discounts from various establishments, as well as special zero percent interest for up to three or six months for certain types of purchases. Cashback promos are among the most in-demand benefits by a lot of credit card users.

Doing some research on credit card benefits and discounts could go a long way in helping you earn discounts and savings that match your lifestyle–benefits that you’d probably never get otherwise.

Don’t max out your limit

Here’s a bonus tip when using your Philippine credit card: money-savvy people never max out their card.

Juggling monthly expenses using your credit card saves you the inconvenience of queuing at the bank for utility payments or carrying large amounts of cash. As a matter of industry practice, it’s usually okay to incur credit card expenses up to about 30% of your credit card limit, but do not go beyond that.

Showing you can use your credit card responsibly by paying on time can help you improve your credit score. Your credit card company may even increase your credit card limit once your yearly card renewal comes around or when you ask for one.

Leverage responsible credit card management to your advantage

Money-savvy people know how to use credit cards without getting into huge debt or carrying over any credit balance from one month to the next.

Those who gained the most from credit cards are the ones who follow the credit card best practices outlined above. That includes having responsible credit card payment habits and maximizing credit card benefits. It also involves spending within your means and making sure you know your limits.

Learn the art of managing credit cards with Metrobank. Apply for a Metrobank credit card that fits your needs and lifestyle and gain access to a wide range of credit card benefits and perks.