5 habits of highly-effective credit card users

When I was in my early twenties, I was a credit card mess. I'd go shopping with my credit card in hand and not worry about how much I spent until the bill came. At that point, though, I'd start worrying a great deal — sometimes, I'd worry about it all night!

It didn't take long for me to realize that I had to change my evil spending ways or cut up my card. So, I spent a lot of time learning everything I could about credit cards and personal finance. Use credit or cash, whichever works best for you; but if you do use credit, use it effectively.I literally read everything I could get my hands on. The more I learned, the easier it became to have a relationship with my credit card that it didn't involve sleepless nights.

Fast forward a couple of decades. Now, I spend the better part of every day either writing or talking about credit cards or personal finance. But I freely acknowledge that credit cards aren't for everyone. Cash is king for many people. But for those who do want a mutually beneficial relationship with their credit cards, here are the five habits common among cardholders who use their cards effectively.

Habit #1: They Have an Organized Credit Life.

You need to check your credit report and FICO score regularly. On AnnualCreditReport.com, you can get a free credit report from each bureau (Equifax, TransUnion, and Experian) once a year. Instead of ordering them all at once, request a report from a different credit bureau every four months. This way, you can monitor your report throughout the year. When you read the report, look for errors and signs of identity theft. (Here's Adam Baker's step-by-step guide to how to get your free credit report from AnnualCreditReport.com.)

Know what your credit card balances are on each of your cards. Also keep tabs on the interest rates for your cards. Check your accounts online several times a week so you stay on top of your balances. I know it's a high-tech world, but it's a good idea to keep files that have your credit report, score, monthly credit card bills, and disclosure statements. Nothing fancy required. Manila folders work just fine.

Habit #2: They Pay Their Bills in Full Every Month

One reason you want to have an organized credit life is so you always know where you stand with credit card balances. The goal is to pay off the balance every month. There's really no middle ground here. You have to have the self-discipline to stop spending when you reach your budgeted limit. If your past history suggests that you will keep spending, don't use credit cards.

And give yourself a pat on the back for honesty. The people who are the most successful at managing their money are the ones who know their strengths and weaknesses and make decisions accordingly.

Habit #3: They Use Rewards Cards to Their Advantage

I admit I love a good rewards card.I guess it's the personal finance geek inside me who loves the idea of getting paid to use my credit card. The key here is to use the rewards card to your advantage and that means paying off your bill in full every month (see Habit #2). Rewards cards tend to have higher interest rates. If you carry a balance, you not only negate the benefit, you lose money.

Habit #4: They Track Their Credit Card Expenses

When I had sleepless nights over credit card bills it was because I wasn't tracking my expenses. So when my statement arrived, I almost passed out from anxiety. If you're an effective credit card user — make that a highly effective user — you're never surprised by your bill. And since you're paying the bill off every month, it's just another piece of mail.

There are a lot of fun money management tools out there right now. You just have to do some research and find one that works for you. I use Mint and it's worked well for me. I'm a visual person, and I love all the colorful charts and graphs.

Habit #5: They Read Their Credit Card Bills and Disclosure Statements

Open your statement as soon as it arrives. Look at every transaction to make sure the charges are legitimate. If you see any discrepancies, get on the phone immediately. It's very important right now to read all the disclosure statements you receive. With the credit card legislation still being phased in, credit card issuers are sometimes getting creative when it comes to fees.

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Dee
Dee
10 years ago

So true about paying off your balance in full. I stopped doing that becuase I thought ‘why do i have too’ and it always come back to bite you. The money is not yours, so why do we all feel the need to spend it? Took me a while to learn my lesson and now im on a journey to correct some of my past mistakes.

Eileen
Eileen
10 years ago

Good timing on this post for me. My son (18) lost his wallet on a trip recently. Unfortunately, it had everything (DL and SS card). I tried to run a credit report this morning and it was unable to pull it. It said it could be due to a number of issues, but I noticed that when it got to the screen where you confirm things like “street”, “employer” with the multiple choice, none of the choices in any questions applied to him, all of the answers were “none of the above”. I suspect I need to follow up in… Read more »

Beth
Beth
10 years ago

Kudos! I keep hearing credit cards demonized in the PF media, so it’s nice to see a balanced take on using them! I give my parents credit. They planned their purchases pretty carefully and never charged anything unless the money was already sitting in the bank.

I follow most of these rules, but I need to work on #1.

JakeIL7
JakeIL7
10 years ago

In #5 you say to check your transactions every month as part of your statement review. That is way too long of an interval if you card has been stolen. You need to check transactions at least once per WEEK. After all, the easiest way to avoid credit card fraud is to shut the card off after the first bogus transaction.

Tara
Tara
10 years ago

We switched to a rewards card offered through our credit union as opposed to a rewards card offered from a national bank. Our spending amounts each month haven’t changed, but while last year we got back $250 total in rewards, this year we’ve already claimed $400!

Avenger2354
Avenger2354
10 years ago

I have not paid interest to a credit card company in almost 20 years, but I’ve reaped the benefits of their rewards programs for years. Right now, my internet high interested savings account pays 1.30% while I collect up to 5% in rewards from purchases on my credit card. Only in a mixed up, shook up world can you make more money off of purchases with a credit card than on your savings account. Oh well, can you hear that sound coming though your lap top speakers…It’s the sound of interest accruing.

Evan
Evan
10 years ago

I’ve heard Dave Ramsey often say that statistically people spend more with their credit cards than with cash because emotionally it doesn’t hurt as much (you can’t see the money leaving).
I’m pretty skeptical any time he uses a statistic like this but was wondering if you’d read or heard the same and what effect that has on you endorsing responsible credit card use.

Everyday Tips
Everyday Tips
10 years ago

I check my online statement at least once a week, and I have caught a few incorrect charges. (Mostly, I was charged twice for something. Once someone was using my credit card number, even though I still had my card.)

I love my Amex Blue Cash Card, as the rewards pay for almost all of my Christmas Shopping. I also pay my bill every month.

Chetan
Chetan
10 years ago

At the end of each statement period for my credit card, I take the PDF statement and print it out. Then I sit down with the printout and carefully tick off each charge and the associated CC charge slip (yes, I preserve them carefully).

Once I make the payment on the card, I use Adobe Acrobat to make a note in the statement about the payment details and save off the modified PDF file to a folder.

Finally, I shred the statement printout as well as all the ticked charge slips.

todd
todd
10 years ago

1. They do not have a credit card.
2. They do not have a credit card.
3. They do not have a credit card.
4. They do not have a credit card.
5. They do not have a credit card.

Evan
Evan
10 years ago

@Avenger2354: Am I crazy for not understanding this? A credit card isn’t a savings plan. Yes you’re getting some money back from your purchases, but you’re not MAKING money if you have to spend $100 to make $5.
Related to my first post, don’t you think you end up spending more on your CC since you’re telling yourself you’re basically making money on every purchase?

I’ve always thought rewards are a good bonus, but not if you end up spending more to get them.

ami
ami
10 years ago

#2 Eileen: if your son hasn’t already done so, he should immediately call all his card companies and his bank to cancel his cards. He should also consider putting a fraud alert on his credit report (he can call any of the credit bureaus to do this). A stolen wallet is a ripe source for credit card fraud. Beverly: This is a good list. I’d add to #5 “Credit card users should know what fees and penalties will apply to them.” For example, if you’re going overseas, you should know if your card company will charge you an extra fee… Read more »

JMK
JMK
10 years ago

Evan – agreed, if you are spending more because you’re using the card or envisioning the benifits it’s not worth it. I think what Avenger2354 meant was, why wouldn’t I want to earn cash back for doing what I was going to do anyway? I too never pay interest and use my card for virtually every purchase I make. I annoyed when I can’t pay with my card. To me it’s lost flight miles when I have to pay my electric bill online and can’t have it put directly onto my card. We live pretty frugally so a typical week… Read more »

Avenger2354
Avenger2354
10 years ago

Evan: I should have added some more info, but I was making a quick reply. It’s not a savings plan, I was just remarking about how odd it is that the cashback reward for making a purchase is 5% while the interest on my savings account is only 1.30%. I don’t make purchases to get the reward, I only purchase what I would normally purchase. However, if it is possible to make the purchase with a credit card then I always do, so that I can get the cashback reward. Example, groceries, gas and some bills have been set up… Read more »

Kelley
Kelley
10 years ago

Evan, after finding Dave Ramsey (and I’m sure other people on this site will say the same thing) we stopped using credit cards. And we didn’t abuse them and we always paid our bill on time and we always got good rewards. But I love what Dave says, “You won’t find a millionaire who says, Wow it was my discover points that got me where I am today!” That was the reality for me. We can do better with our money by communicating in a monthly budget meeting and have a zero based budget. That and I don’t like the… Read more »

Evan
Evan
10 years ago

@Avenger2354: Faith in humanity restored, thanks for the further explanation.

Peggy
Peggy
10 years ago

These are all good habits to follow in general with one’s finances.

Habit 5 kept me from ever getting a credit card in the first place. Every time I read the fine print on a credit card offer, it gives me a headache and I refuse to sign up.

Evan
Evan
10 years ago

@Kelley: We do a zero-based budget too, but in Canada we don’t have your whole debit-card-is-like-credit-card system. Our debit cards don’t have the same protection or online usability as yours in the States (I think they’re coming soon) and after doing some research it’s just too much of a pain to get rid of the card completely. I’ve found that the zero-based budget pretty much eliminates any lapse in judgment with CC use since you know that buying something that’s not allocated will completely ruin your plan (not to mention make for an awkward conversation with my wife – once… Read more »

The Skinny On
The Skinny On
10 years ago

Great summary. Credit cards aren’t something you should fear out of hand. In the end, they’re like anything else – act irresponsibly and pay the price.

Thanks Beverly.

P.S. Of course, credit cards are deliberately tricky to understand and easy to use. To learn some of the finer points, see my 15 Most Important Lesson For Avoiding Credit Card Debt.

Kelley
Kelley
10 years ago

@Evan. That’s awesome. We switched to cash this month for the first time (had been using the debit card and tracking expenses). I’m throwing our first mortgage prepay amount today…kind of nervous but feeling pretty good about it! Someday BS7.

Eileen
Eileen
10 years ago

@Ami – thanks! He only had a debit card beyond the DL and SS Card in his wallet and that was canceled right away. Thanks for the advice about the fraud alert, given his age and being a college student, he will not be applying for anything (cards, loans) in the near future, so any attempts to do so would be suspicious.

Janice
Janice
10 years ago

Doing some experimental financial budgeting, I switched over from cash to credit for my essential purchases, i.e, groceries, gas, meds, etc. This is what I found. Yes, I do spend more using a credit card even in the grocery store with a list and at the gas pump, everywhere. Not a lot because I do follow a budget, but definitely don’t feel as restricted. And I do pay the balance every month and check my balance daily. Yes, I became a rewards hound only to be “rewarded” by my credit card company (Capital One) with a new change in policy… Read more »

ldk
ldk
10 years ago

Good review, J.D.
Credit cards are a reasonably sophisticated money tool…if you know how to use them properly they are a fantastic way to go about your spending. (Purchase insurance, rewards, ability to track your spending closely, etc.) Unfortunately they often end up in the hands of unsophisticated users (they hand them out like candy to college kids)where the end result can be disastrous.

Steve
Steve
10 years ago

I only have about half of these habits. #2 should really be #1 – that’s the key habit. I don’t see how checking your credit report (good idea though it is) will keep you out of debt.

Steve
Steve
10 years ago

I am incredibly skeptical of rewards cards, mostly because I don’t use credit enough to warrant having one. I have one card that I use once per month, and two others that I never use. I do have a General Motors Family rewards card but I don’t use it; the “rewards” are only good toward a new car and only last for 5 years. I will not be buying a new car in that time frame. I also feel that “getting something back” would encourage me to spend more. I could use it to pay for things I already need… Read more »

Tyler Karaszewski
Tyler Karaszewski
10 years ago

It seems that four of the five habits of highly-effective are all about risk-mitigation. The final one is about rewards, which generally amount to a 1% discount.

At what amount of risk and constant monitoring for fraud prevention do you just say, “you know, it’s not worth it”?

Avenger2354
Avenger2354
10 years ago

Steve: I treat my cards like they are cash, so personally I don’t feel like I’ve bought something just to get a cashback reward. I do think that this can be a problem for some though, very much like using coupons which I also do. You just have to live the mantra of only buy what you need and what you would normally buy, and that goes for both credit cards and coupons. I’ve never been interested in any of the reward programs except cash, so I’m not familiar with airline miles or car discounts. When I looked at some… Read more »

Avenger2354
Avenger2354
10 years ago

Tyler: It takes less time to check your accounts online than to respond to one of these blogs. As for risk, assuming you mean fraud, it would depend on the person holding the card. By trade, I’m a financial crimes investigator with a large law enforcement agency, I feel that my risk is about zero. The average person, not someone reading this blog or other financial blogs, will probably have about an 80% chance of being a victim of fraud and most of that will be via a credit card compromise. Chances are though that if you are reading this… Read more »

Michelle
Michelle
10 years ago

I disagree with those who say there is no responsible way of using a credit card. I have 2 different rewards cards through my credit union. One gets me additional points on gas and groceries, the other on travel and restaurants (I travel often for work, so use this card for those expenses). I’m not trying to get rich off of my rewards points, but if I need to make purchases anyway, why wouldn’t I want to use the option that gives me a discount? First, there is no way anyone who travels often could do so without a credit… Read more »

Mom of 5
Mom of 5
10 years ago

@Kelley #15 re: Dave Ramsey’s claim about millionaires and credit card points is disingenuous. He knows it too and that’s why he’s changed his schtick. He used to say you won’t hear millionaires bragging about their Discover points, now it’s you won’t hear a millionaire say his Discover points got him where he is today. In truth, you hear millionaire next door types bragging about credit card points all the time. However, the best argument I’ve heard for not using cc points is actually from Dave Ramsey. Dave reminds us that cc companies are bloodsucking scum, which is why I… Read more »

Steve
Steve
10 years ago

I might spend less money if I was on an all cash system; but what I would spend a lot more of was time going to the ATM and/or stress about largish amounts of cash in my wallet and home. I would rather have the time and lack of stress than the money. And I also get to keep the stuff and experiences I spent the money on! On the other hand, I do worry about the effect of the credit card tax on our society. 3% skimmed off every transaction that is done by credit card is a lot… Read more »

Money Reasons
Money Reasons
10 years ago

In your list above, I only do numbers : 2) “pay in full each months” 3) “capitalize on the reward cards” and 5) “check statements for unwarrented charges/fees” Since I’m really frugal, it has made the tracking unnecessary (other than the monthly statement). I’ve always frugal in my spending habits, so that has enabled me to never carry a balance that I would have to pay interest on over a span of 2 months. I talk my self out of purchases regularly and either repair what has broken or buy used, or do without. Only when it is absolutely necessary… Read more »

Techbud
Techbud
10 years ago

Think it all boils down to self control. If you manage your budget effectively and can use the credit cards the same way. Why not take additional advantage of things like rewards, buyers protection, etc.

If you can’t stay within budget when using credit cards they may not be for you.

Jaime
Jaime
10 years ago

Yep I do all the above; a credit card can work for your own benefit if you want it to. =)

jim
jim
10 years ago

#7 Evan : “I’ve heard Dave Ramsey often say that statistically people spend more with their credit cards than with cash”

Ramsey likes to cite a Dun & Bradstreet study. ONly problem is that study doesn’t actully seem to exist:

https://www.getrichslowly.org/money-myths-and-the-importance-of-thinking-for-yourself/

Evan
Evan
10 years ago

@jim: Haha, thanks – I’d read the money myths article before but didn’t know that that particular myth was from it.

I really don’t like the way Dave plays around with stats and interpretation (insurance is a scam because the only way they make money is by charging you for something you won’t use/you need life insurance, long-term care insurance, disability insurance), not to mention his insanity with 12% portfolio returns.

Still though, I often find his conclusions worth listening to even if the way he got there was misguided.

SLCCOM
SLCCOM
10 years ago

The ONLY time you (or anyone) should be carrying their Social Security card is if you are on your way to a job interview.

It really makes stealing your identity a lot easier if you carry it.

chacha1
chacha1
10 years ago

Actually, SLCCOM, you shouldn’t even carry your SS card for interviews. Your first day at the new job, sure – so they can fill out your I-9. Before that, the prospective employer doesn’t need it. They can get your full background check and credit report with your DL number and your SSN, they don’t need to see the actual card.

Back to OP: I think #1 is the real key. If you are organized, you’re going to be okay with credit. If you’re not … well, you’re not. All the others depend on that one.

Adam@RabbitFunds
10 years ago

Although I generally advocate not using credit cards at all (just remove the temptation), I agree/like the list you’ve presented here. I’ve been a big credit card user in the past, but we always used it responsibly. I always paid it in full each month. I used my cash back to pay bills or I just put it in savings. So avoid credit cards where possible, but if you must, then at least be smart about it.

El Nerdo Loco
El Nerdo Loco
10 years ago

I’ve had enough problems with credit cards to know a few things: 1) Reading the fine print doesn’t mean you’ll understand it completely or that you will remember all of it or that things won’t change later down the road in ways you don’t comprehend. 2) If credit cards offer you “rewards” it’s because they are making money out of you. You might think “oh, it’s the merchant’s fees”, but you’ll tend to spend more than you would if you paid cash. Especially if you think you’re “getting rewards”. 3) Maybe there are a few highly disciplined individuals out there… Read more »

Beverly Harzog
Beverly Harzog
10 years ago

@29 (Michelle): I’m the same way when it comes to cash. If I have it in my purse, I tend to spend it. When I don’t have the cash and I’m using a credit card for a purchase, I think about my budget and how much I’m putting on my card. And hey, I feel the same way about my rewards card! @35 (Jim): Thanks for posting that link to JD’s story about myths. That’s very interesting stuff. @38 (Chacha1): So true that it starts with #1. If you don’t have an organized credit life, then the other habits don’t… Read more »

Trina
Trina
10 years ago

There are lots of different ways to get in trouble with credit cards. For me, back when I first got out of college, they just allowed me to ignore reality and pretend I had money that I did not have.

I learned my lesson, and I have been responsibly using credit and debit cards for many years, including my rewards card from Costco.

For me it all boils down to a willingness to face and understand reality, and the will not to spend more than you make.

Rosa
Rosa
10 years ago

I don’t even use my (one) credit card more than 2 or 3 times a year, and I still check my credit report at least twice a year – just because I don’t have a card doesn’t mean someone else hasn’t taken one out in my name.

Ely
Ely
10 years ago

I’m one of those “responsible” credit card users. I also find that cash flies out of my wallet, while I always have to stop and think before using a card (credit or debit). I’m not a rewards-chaser but if they’re going to hand them out for something I do anyway, I’ll take them.

I find that the no-credit-card camp contains a lot of the same morally self-righteous types as the joint-accounts-only crowd. If you don’t like credit cards, don’t use them; no need to go insulting people who do. (el nerdo.)

Mary Ann
Mary Ann
10 years ago

Excellent redit card habits list, Beverly!

I agree with chachat that #1 is key…be organized, and paying on time, etc. will fall into place.

El Nerdo Loco
El Nerdo Loco
10 years ago

@44 Ely: Of course I’m being self-righteous, even a little insane. I said so myself when I compared myself to an alcoholic who must demonize alcohol in order to quit drinking. I demonize credit cards– I see them as the plague. They give me hives. I’m like the obnoxious ex-smoker who starts to pester everyone around him to quit. Absolutely. Everything that credit cards do (track spending,earn rewards, fraud protection), debit cards do– without the risk of incurring interest charges. Of course it is possible to use credit cards responsibly, I’m not denying the possiblity, but I’d rather stay adamantly… Read more »

BD
BD
10 years ago

Good article!
I definitely have all those traits.

I try to put as many of my regular basic living expenses on my Credit Card. I pay it off in full each month. During the year, I collect points. Then, at the end of the year, around November, I cash the points in for Gift Cards to use as Christmas Gifts for my family. It’s like my basic living expenses end up paying for my Christmas gifts.

(No, I don’t put more on the card than I have to. I don’t spend just to get points).

Kelley
Kelley
10 years ago

I’d just like to say, that we’ll be millionaires by the time we’re 40 and it certainly won’t be because of our credit card points. It’s because at 28 years old we found a system (Dave) that encourages paying off ALL debt, paying off your house and sticking that money in your pocket and the pockets of others. 40! Do you hear me people? So have fun with your credit card points. They are blood-sucking scum, even if they’ve never tasted our blood.

Jaime
Jaime
10 years ago

Why do people always credit Dave Ramsey? I don’t get it, he’s not the first person who came up with living below your means,having savings, etc. Seriously its just common sense to do so, he didn’t come up with it, had he not been born, we would still be able to function because we have brains. It doesn’t take Dave Ramsey to let me know that debt is bad and savings are good. btw, just because people use credit cards doesn’t make them stupid, my credit score is in the 700s, I have no debt not of any kind, and… Read more »

terpfan122
terpfan122
10 years ago

I never check my credit score.
I always pay my bill in full.
I love my cash rewards!
I never really track my expenses
I never, ever, read the fine print, boring!

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