Credit Basics — Using Credit Wisely

Using Credit Wisely

Maintaining your financial health is kind of like staying in good physical condition—both require healthy habits. Your body requires a balanced combination of nutrition and exercise to stay healthy. Likewise, your credit needs a lot of attention, and requires balanced spending and responsible behavior. Take control of your finances and help establish good credit by practicing the following healthy habits:

Healthy credit habit 1:

Create and stick to a budget.
You can start by creating a budget that outlines all of your monthly expenses. Looking at your budget will help you map how much you have available to spend, and how much debt you can you can afford to take on and repay.

Healthy credit habit 2:

Borrow only what you can afford to pay back.
Show future lenders they can depend on you by borrowing only as much money as you can afford to pay back. A general rule of thumb is to spend no more than one-third of your income on debt—that includes mortgages, credit cards, and consumer loans (for example car loans, student loans, and lines of credit). Also, always track your spending to make sure that you’re staying within your monthly budget.

Healthy credit habit 3:

Pay your bills on time.
It is very important to pay your bills on time every month. Make it a priority to never skip payments. This shows lenders you are responsible, and trustworthy. A large part of your credit score depends on how timely you are with bill payments.

Healthy credit habit 4:

Carry credit card balances responsibly.
If you have a credit card, it is important to be responsible when it comes to carrying a balance. It’s okay to carry a balance, but if you do, then you should:

  • Make your payments on time
  • Make at least the minimum payment on your card each month, and pay more than the minimum when you can
  • Avoid exceeding your credit limit
  • Pay attention to your account balances—Ideally, keep your balances below 25 percent of your credit limit at any time, even if you pay off your bill in full every month. If you start getting near your credit limit, this can be a flag to potential lenders, suggesting you're maxing out your cards.
  • Pay off your outstanding balance as quickly as possible

Healthy credit habit 5:

Check your credit report at least once each year.
Keep an eye on your credit report. Checking your credit report regularly will help you catch and correct potentially costly errors such as:

  • Accounts you don’t recognize
  • Loans that have been paid off but still show up as “open”
  • Incorrect personal information (such as your address or employer)

Checking your credit report is also one of the best ways to spot potential fraud and protect yourself from the impact of identity theft. Everyone is entitled to ask for a free copy of their credit report from each of the nationwide consumer credit reporting companies—Equifax, Experian and TransUnion—once every 12 months. Your free reports can be requested by phone, by mail or by visiting the government-sponsored website:

Good to know: While your credit report will give you all the details of your credit history, it will not include your credit score—which you may have to request (and pay for) separately.

Take advantage of technology to avoid credit pitfalls

Many credit card companies and banks offer free, easy-to-use tools to help keep you in control of your credit accounts. Check to see if your credit card or bank offers money management tools like:

  • Toll-free customer service
  • Online, mobile and phone access to your account, and bill payment options
  • Low balance, overdraft and “payment due” alerts by text, e-mail, or telephone call
  • Instant, free transfers to and from your other accounts
  • Free transfers to your account from most other banks and brokerage firms

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This site is for education purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.