The 10 Commandments of Credit Card Use
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Some people will argue that credit cards are an irredeemable financial evil. They certainly do lead a lot of people down the path of overspending, debt, and even bankruptcy. But I don't think the problem is the credit cards themselves — it's how we use them. And if you follow a few key rules, you can enjoy their convenience and their benefits without the financial fallout. You can start by faithfully following these 10 credit card commandments. (See also: Habits of Financially Happy People)
1. Thou Shalt Not Avoid Using Credit
If you want to buy a house, a new car, or start a business, chances are you'll need credit. Yes, the system is totally rigged — and not in consumers' favor — but if you want to win at the American dream, you have to play the game. And that requires a good credit score. Using a credit card regularly and paying it off in full is one of the best ways to build good credit, especially early on in your working life. (See also: How to Build Your Credit From Scratch)
2. Thou Shalt Do the Math
Many of the biggest financial sins we commit boil down to not doing the math. So, before you dump a 21-day Mediterranean cruise onto your credit card, work out how you're going to pay for it when the bill comes. This calculation should include how long it'll take you to pay off your balance if you don't have the cash to pay it off in full, and how much interest you'll pay. If you do this every time you're considering making a big purchase, you'll probably end up spending a lot less. You don't even need to do the math yourself. Use this credit card calculator provided by the Federal Reserve.
3. Thou Shalt Treat Thy Credit Card as a Convenience
Listen to these words: Credit is not money. I repeat, credit is not money. OK, so you know this. Pretty much everyone knows this, but sometimes we like to pretend that we don't. How else can you explain the average U.S. credit card debt of $15,270 per person? That's where this credit card commandment comes in. Don't think about it. Don't argue over it. Just obey it.
4. Thou Shalt Honor Thy Payment Deadlines
Paying off your credit — preferably in full — every month and on time is basically like getting a 30-day loan from the bank for free. Free things from banks are rare. Very rare. Take advantage of this tiny perk by paying your credit card bill on time. Paying on time can also help boost your credit score, which will help you save even more money at the bank if you need to take out other loans.
5. Thou Shalt Not Close Unused Credit Cards
Cut them up, hide them, put them on ice, but don't close those credit cards — at least not without getting some good financial advice. In many cases, closing a credit card will reduce the amount of credit available to you, which can have a negative impact on your credit score. (See also: How to Rebuild Your Credit in 8 Steps)
6. Thou Shalt Choose Thy Card Carefully and Understand Its Rules
There are literally thousands of different credit cards available, with different interest rates, fees, and perks. When you choose a credit card, choose carefully and read all the documentation to make sure you understand what you're getting. Choose cards with the lowest annual percentage rates (APRs), no annual fees, and reasonable penalty terms (just in case). (See also: Best Low Interest Rate Credit Cards)
7. Thou Shalt Track Thy Purchases and Review Purchase History Regularly
The best way to avoid overspending is to keep track of what you're actually buying and how much it's costing you. Don't wait until your credit card bill arrives in the mail (at which point you might be at a loss to remember what happened early on in the month.) Instead, review your charges regularly online. That way when you get the bill, there will be no surprises. This will also help you stay on top of potentially fraudulent charges.
8. Thou Shalt Check Thy Credit Report Annually
Like it or not, your credit score affects everything from mortgage rates to your employment prospects. Review your credit report thoroughly and regularly. This will help keep you motivated to make the smart financial moves that help to improve your credit score. Plus, as many as 42 million Americans' credit reports contain errors. You may have enough financial transgressions of your own to deal with; don't get stuck paying for other people's financial sins, too.
9. Thou Shalt Not Get Sucked into Spending More to Earn "Rewards"
The fact that there are so many reward credit cards available is no accident. They're profitable for credit card companies because those rewards encourage people to use their credit cards more often — and often too much. There's nothing wrong with raking in some rewards on your credit card. In fact, Wise Bread even encourages responsible use of travel and cash back rewards cards. But you have to be smart about it. That means spending only what you can afford to pay off, and paying off your balance in full. Otherwise, it's your credit card company that'll be reaping the rewards, while you pay the price.
10. Thou Shalt Not Covet
Listen up, people — this commandment comes straight from the Bible and was carved in stone long before credit cards even existed. It's also at the root of a lot of big debts. To covet is to want, envy, or lust after something. It's human nature to want things (nowadays, we call it "keeping up with the Joneses"), especially when those around us already have them. The problem is that when you use debt to try to keep up, you're really only putting yourself behind. Plus, while I'm not a religious person, I suspect that this relatively innocuous sounding commandment was placed among things like "Thou shalt not kill" because giving in to the green-eyed monster often leads to bitterness and other ugly behavior — not to mention a lack of appreciation of what we already have. (See also: How Peer Pressure Keeps You Poor)
Credit cards aren't the root of all evil; they're tools. Whether they benefit you or send your finances to the dark side is up to you.
Any credit card commandments I've missed? Please hand them down in comments!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.