How to Use a Credit Card

The majority of people either use or have used a credit card at some point in their life. But when it comes to the intricacies of how to use a credit card most efficiently, many people get confused. Due to the lack of knowledge, some use their credit card like a debit, missing out on the opportunity to improve their cash flow, build or rebuild their credit history, and change the way they budget in general. To tap into these benefits, you need to learn the best way to use a credit card.

How Do Credit Cards Work?

Before getting a credit card, you should understand how this financial product works. Simply put, credit cards allow users to borrow funds directly. Unlike debit, credit cards are not linked to your account, and you are not using money you own.

And how to use a credit card at an ATM? Choose a machine that accepts your credit card. Enter your PIN number and select “credit” to withdraw money. The transaction will be subject to an immediate cash advance interest. Depending on the card issuer, a cash advance fee may also be imposed.

How to Get a Credit Card?

Before we proceed to credit card tips, we should first address the issue of getting a credit card. There are typically several basic requirements from the issuing bank.

Basic criteria

  • First, the cardholder should be 21 or older. With a parent’s permission or a verifiable source of income, the minimum age is 18.
  • Second, the user needs to have a social security number (SSN) to verify both citizenship and credit history.
  • Third, the user needs to have a verifiable source of income. Since this is a type of loan, the credit card issuer needs to be sure that you can return the borrowed money.
  • Fourth, you need to have a decent credit history. The credit card issuers usually perform a hard credit pull. They also typically insist on credit scores higher than 700. The exceptions are cards oriented towards fair credit score users. There are even some issuers that specialize in credit cards for people with bad credit.

Application process

To get a credit card, you also need to submit a formal application. The form itself is relatively simple, and it requires the prospective cardholder to fill in several different categories of information:

  • Personal information — citizenship/residency, date of birth, and social security number.
  • Information regarding income — gross annual income, homeownership status, and monthly housing payment.
  • Contact info, including primary phone number and email address through which the credit card issuer will communicate with the applicant.
  • Other authorized users, which will get additional cards (typically at no additional cost).
  • Applicant signature and date of application.
  • Lastly, while submitting, you can require the transfer of balances.

Criteria for choosing a credit card

One of the most important things to consider is what is the APR on credit cards from specific issuers. The objective here is to find the credit card that offers the best annual percentage rate. Ideally, you are looking for 0 interest credit cards but if you can’t find or qualify for one, look for as favorable terms as possible.

How to Use a Credit Card?

New users often wonder how to use a credit card for the first time without getting into too much trouble. So, let’s get that cleared.

How is interest calculated?

When you receive a credit card, the issuer bank will inform you about its APR. To get an approximate calculation of your credit card interest rates, you need to divide the APR by the number of days in the year. Then, you take this number and multiply the daily rate you get this way by your average daily balance. The number you get should be multiplied by the number of days in your average billing cycle (usually one month or 30 days).

Which credit card fees should you worry about?

There are a lot of fees involved when dealing with a credit card. To learn how to use a credit card properly, you need to be familiar with at least these eight basic ones:

  • Annual fee
  • Late payment fee
  • Foreign transaction fee
  • Returned payment fee
  • Cash advance fee
  • Over-limit fee
  • Balance transfer fee
  • Interest charges

What is a grace period?

The purchase interest charge may not start right away. If a credit card issuing bank offers a grace period, you may have a time-window between the end of the billing cycle and the payment due date. Keeping track of this, you have a chance to avoid paying interest on a certain purchase. Keep in mind, though, that not all credit card issuers offer a grace period.

What are minimum monthly payments?

When you get a credit card, you have to make credit card payments every single month. There is usually a monthly minimum that you need to deposit in order to avoid late fees. This, however, is the slowest way to repay your credit card debt. Generally speaking, this is a strategy that is only advisable during months of crisis or austerity.

How to use a credit card online?

Using a credit card online is a great idea in the e-commerce era, not to mention the advantages of online banking. In most cases, all you need is a card number and a card security code. Both of them you can read off your credit card and enter into your phone/computer in a matter of minutes. The problem lies in the fact that this exposes you to a higher risk of credit card fraud. So, it would help if you learn how to fight this menace. Here are several tips:

  • If you have several credit cards, try to use only one of them for all your online purchases.
  • Use only trusted websites for these purchases. Big brands and renowned e-commerce businesses are the safest bet. Also, checking the vendor’s reputation is generally a good idea before making any credit card payments. The ‘S’ in HTTPS stands for ‘secure’. But remember that even this is not a 100% safe verification method.
  • Using your credit card to buy online while you’re on a random public Wi-Fi network is never a good idea.
  • Lastly, while a lot of people use their phones to pay bills and make purchases, not many have antivirus software installed on their mobile devices. Consider this option if you want to add an extra layer of security.

How to Build Credit with a Credit Card?

When considering how to use a credit card most efficiently, one of the ideas is definitely using it to build your credit.

The first thing you need to do is to pay every minimum credit card payment on time. Paying over this minimum will help you cover your debt faster, but as far as credit is concerned, timely payments are all that counts. One of the most useful credit card tips is to check if there’s an autopay option. This way, you no longer have to worry about remembering the due dates.

The next aspect you need to get familiar with is the responsible credit card use through the credit utilization ratio. To calculate it, you need to divide the amount of revolving credit that you’re using at the moment by the total amount available (your credit card limit). The general rule is to strive for a utilization rate below 30%, but some financial experts recommend keeping it below 10% for an excellent credit score.

Lastly, bear in mind that closing a credit card, especially one with a high credit limit or with the longest history, will hurt your credit score.

How to Use a Credit Card Responsibly

Responsible credit card usage is often a matter of knowing the rules and the available options.

Set a spending limit

The simplest way to keep your utilization rate in the recommended ranges is to set a credit card spending limit. Some issuing banks allow you to set this up automatically, while others merely let you track your use.

Redeem rewards

Some credit card issuers reward cardholders for spending on their credit card. These rewards come in points that can be redeemed for air miles, merchandise, gift vouchers, and more. The bonuses are equivalent to money and may affect your decisions regarding when to use a credit card.

Set security alerts

A lost or stolen credit card is definitely a hassle. But not noticing the card is missing poses a serious threat to your finances. You should act quickly to mitigate the risk. The simplest way to make your reactions timelier is to set up purchase alerts. This way, you will receive a notification via an email, SMS, or smartphone app for every transaction.

Automatic payments

In terms of how to pay credit card bills more regularly, you can contact the bank issuer and inquire whether it has an automatic payment option. This way, the minimum monthly payment would be charged directly from your account, and the only way to miss a due date would be if there’s not enough money on the account at the time.

Try to pay your full bill

Those wondering how to lower their credit card interest rate will find the answer to be quite simple really – try to pay your full bill before the end of your next statement period. This is usually between 21 and 25 days before the end of the bill’s due date.

Inspect your statements

It’s crucial to always look at your credit card statements and try to spot any odd payments. This is one of the best, yet commonly ignored, credit card tips for beginners.

Key Takeaways

Those looking for a guide on how to use a credit card first need to understand that every card issuer is different. A good credit card APR is important, but other conveniences also count. The reward programs, grace period, and minimum credit score requirement are factors you need to take quite seriously. All in all, credit cards are an inevitable part of modern society and, in 2021, it’s nearly impossible to lead a healthy fiscal life without knowing how to use them.


How many credit cards should you have?

To stay safe and always have access to money, you need to have at least two or three credit cards. Ideally, you can have two always with you, and one at home. This way, in case of a problem with the issuer, a clerical error, or a credit card fraud, you still have options to pay with a credit card.

What is a good APR for a credit card?

The lower the APR you can get, the better. According to Federal Reserve data, the average interest rate for a credit card in the USA was 14.65% in November 2020. Statistically speaking, everything below the average is a good APR.

How does credit card interest work?

If you don’t pay your credit card bill in full on the due date, the issuer will charge you interest. This is a daily rate calculated by dividing the credit card’s APR by the number of days in the year (365) and multiplying your current credit card balance by the daily rate.

How to avoid credit card interest?

To avoid paying interest on your credit card, you need to pay off your statement balance before your credit card bill is due on that month. Other than this, you can also shift existing debt to a 0% balance transfer card, avoid withdrawing cash from an ATM, and steer clear from paying interest on purchases.

Is it bad to close a credit card?

Unless it is absolutely necessary, it is a bad idea to close a credit card. By closing a credit card, you lower your borrowing limit and shorten your credit card history. Both of these things can hurt your credit score. Still, if you pay off the balance before closing the card, you can mitigate these negative effects.

What happens if you don't use your credit card?

In a situation where you don’t use your credit card for a while, your issuing bank may decide to close the account. Also, if you’re not using your credit card regularly, the chances are that you also aren’t checking up on it. This makes you more susceptible to fraud.

Can you pay a credit card with a credit card?

When researching how to use a credit card, it’s important to learn all the payment system’s limitations. So, the straight answer to this question is no. You can’t use a credit card to make a minimum monthly payment for a different credit card.


Content writer and amateur boxer. A few years ago, I dived into the financial world with an aim to help both heavyweight and lightweight investors make a knockout. I love to spend my free time watching movies and playing video games. Other than this, doing the best I can to support my kid in achieving his lifelong dream of becoming a Ninja Turtle.

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