Credit cards can be a great financial tool when used correctly. They can also create a lot of havoc when misused. Credit cards make it easy, but potentially expensive, to buy nearly anything. They’re also a great way to improve your credit, as long as the balances stay low. Learn how to use them wisely and avoid potential pitfalls.

Keep these tips in mind when pulling out the plastic:

1. Pay off your balance each month. Ideally, this way, you’ll never pay any interest. In general, if you can’t pay it off, you can’t afford it in the first place.

• Always make your payment before the payment due date. Credit card companies make more money from late payments than from interest. Don’t let these profits come from your pocket!

2. Stay within 30% of your credit limit. A large portion of your credit score is determined by how much of your available credit you’re currently using. Banks refer to this as your ‘utilization ratio.
   • The general consensus is that you’re okay if the number stays below 30%. This means, for example, that if your limit is $10,000, you should never owe more than $3,000.
3. Negotiate a lower interest rate. Don’t think that number is set in stone. Your credit card company would instead get 16% and then get 0%. You’ll likely be surprised if you call and ask them to lower it; let them know you’re considering switching to a lower-interest-rate card.
4. If you can’t make your payment, let them know. Please refrain from making them chase after you. Be proactive and explain your situation. They’re frequently willing to work something out. At the very least, you can usually get the late fees waived.
5. Keep your accounts open. Remember that your utilization ratio is essential. If you close your account, you reduce the amount of credit you have available overall. Eliminating that card could make you go over the 30% threshold. Feel free to cancel if your utilization ratio is well below 30%.

• If you want to cancel because you’re wasting money on a card with a high annual fee, then find a better card with an appropriate credit limit to take its place if you’re near your threshold.

6. Limit everyday purchases on credit. Unless you’re careful, it’s easy to overspend. If you use your card to buy all your food, gas, clothing, and other expenses, you might be short when the bill comes due. Keep close tabs on your charges.
7. Use your credit cards to purchase items you need. A need is not the same as something you want. Avoid spending money you don’t have on something you don’t need.
8. Find the right card. There are a ton of options. Some cards give money back for gas purchases. Others give credit towards plane tickets. Do your research and find the card that best fits your situation. The interest rate and associated fees are essential.
   • Remember that all of these kickbacks are not only to entice you to sign up for their card; they are also there to get you to use the card frequently. Be smart when using a credit card and avoid the temptation to over-extend yourself.

Credit cards can be excellent tools to build your credit score, make emergency purchases, and save some money. However, they can just as quickly create a tremendous financial burden and ruin credit scores when misused. Use your credit cards wisely for a more secure financial future.