There are many different ways to use credit, whether you’re hoping to fund a large purchase, build your credit score or earn rewards on everyday spending. Understanding the most common credit card uses can help you make smart credit choices. If you’re hoping to save money on your next big vacation, for example, using a travel credit card to earn points or miles could be a wise move.

But what if you don’t know how to use a credit card in the first place? This guide will take you through all of the steps involved in choosing a credit card and using credit wisely. This means that not only will you know how to use a credit card, but also how to avoid the kinds of credit card uses that could lower your credit score, make it more difficult to earn credit card rewards or lead you on a path towards credit card debt.

In this guide we will discuss the following:

  1. Decide why you want a credit card
  2. Choose the right credit card
  3. Know when to use credit vs. debit
  4. Pay your credit card bills on time
  5. Be familiar with any credit card fees
  6. Keep an eye on your balance
  7. Improve your credit score
  8. Earn and redeem credit card rewards
  9. Leverage multiple credit cards

Decide why you want a credit card

Start by asking yourself why you want a credit card. A person who wants to use a starter credit card to build credit has different needs than a person who wants to use a groceries credit card to help their family save money on monthly food costs.

To get the best use out of your credit card, ask yourself why you’re hoping to use it in the first place. Consider asking yourself the following questions:

  • Do I want to build my credit?
  • Do I want to earn rewards or cash back on everyday purchases?
  • Do I want my online purchases to be more secure?
  • Do I want to consolidate and pay down debt?

After you determine what you want out of a credit card, start researching the best credit card options for your needs. Bankrate’s Cardmatch can match you with a perfect credit card in under 60 seconds—it’s free and won’t impact your credit score.

Choose the right credit card

Once you know what kind of credit card you want, whether it’s an exciting travel credit card to fund your next vacation or an everyday gas credit card to use at the pump, it’s time to choose the right credit card for you.

Do you want a credit card that charges an annual fee, for example, or do you prefer a no-annual-fee credit card? Many annual fee credit cards offer extra perks like complimentary airport lounge access, so you’ll have to decide whether you’ll be able to make the most of the benefits in order to justify the annual fee.

You should also ask yourself whether you have the right credit score for the credit card you’re hoping to get. If you are new to the world of credit and don’t have an established credit history, a secured credit card may be exactly what you need to build credit. This form of credit requires a cash deposit to secure a line of credit—typically equal to 50 percent to 100 percent of the amount of the initial deposit.

Or, perhaps you have bad credit you want to work on boosting by adopting good financial habits. There are credit cards designed for precisely that purpose. While many of these options are secured credit cards, meaning they require a cash deposit as a form of collateral, there are a few cards that don’t require a cash deposit to hold a card. Building or repairing credit will make renting an apartment or working with lenders significantly easier, so consider a credit card for bad credit.

On the flip side, if you have fair, average credit or good credit, there are a handful of great credit cards which offer solid benefits and rewards such as no annual fees, flat-rate cash back, low interest rates and boosted rewards on select categories, to highlight a few.

Individuals with excellent credit have a unique opportunity to qualify for some of the best credit cards available on the market. If you have a FICO score above 800, you may have access to credit cards with lavish rewards, travel perks, low interest rates and more. While credit cards for individuals with excellent credit tend to come with steep annual price tags, the benefits make it worth the investment.

It is important to be realistic when considering what type of credit card will best suit your spending habits or financial goals—so, check your credit score and make sure your credit card application is likely to be approved.

Know when to use credit vs. debit

Credit vs. debit is often a big question for people who are learning how to use a credit card for the first time, so here’s a quick overview of what to use and when:

  • Use credit for online purchases to increase the security of your transaction.
  • Use credit for gas pump purchases to avoid being liable if your card gets skimmed or scammed.
  • Use credit to earn rewards on eligible purchases.
  • Use credit to build your credit score.
  • Use debit if you want to get cash back at the register.
  • Use debit if you are concerned that you might put more purchases on your credit card than you can pay off.

It’s important to put at least a few purchases on your credit card every month so your card account remains active and your credit history continues to grow. Some people like to put only a few recurring purchases on credit (their Netflix subscription, for example) and make all of their other purchases with debit or cash.

Pay your credit card bills on time

If you’re going to use a credit card, you need to pay your credit card bills on time. Paying your credit card bill in full whenever possible means your balances won’t start accruing interest, which makes your purchases more expensive in the long run. If you can’t pay in full, pay off as much as you can to reduce the balance you’ll pay interest on, and always make at least the minimum payment.

What happens if you miss a credit card payment? Not only does your credit score take a hit, but you could also get stuck with late fees and penalty APRs. Miss too many payments, and your debt could go to collections.

So make your credit card payments a priority and set up mobile alerts and/or credit card autopay if you’re worried about accidentally forgetting when a credit card bill is due.

Be familiar with any credit card fees

Credit cards come with various types of credit card fees and it is important to familiarize yourself with any that may sneak up on you by reading your card agreement. Some common fees you may come across include:

  • Annual fees
  • Balance transfer fees
  • Cash advance fees
  • Foreign transaction fees
  • Late payment fees

Make sure you understand your credit card’s terms, as well as the card’s APRs, so you aren’t hit with any surprise charges that could have been avoided in the first place. If you find yourself with a credit card that comes with a hefty annual fee, you may opt for a card that doesn’t have an annual fee. Or, if you are planning on traveling internationally, you are going to want to have a credit card that doesn’t charge foreign transaction fees.

Lastly, keep in mind your credit card may start off with an introductory APR that is for a predetermined period of time. For example, if you find yourself with a balance transfer credit card that offers 0 percent APR for up to 12 months from account opening, after 12 months, your interest rate is going to go up to its regular APR.

Keep an eye on your balance

In order to build a positive credit history, you need to use your credit card on a regular basis—but be mindful of using too much of your available credit. Lenders don’t like it when you max out your credit cards, and credit score companies like FICO and VantageScore will lower your credit score if your balances are too high.

In general, it’s a good idea to keep your credit utilization ratio below 30 percent. Your credit utilization ratio measures how much of your available credit you’re currently using. It makes up 30 percent of your credit score, which means a high credit utilization ratio typically correlates with a low credit score. That means that if your credit limit is $1,000, you should keep your revolving balance below $300. If you want to make a purchase that takes your balance above $300, go ahead, but pay it off as quickly as possible to avoid taking a hit to your credit score.

Improve your credit score

One of the most commonly overlooked credit card uses is your card’s ability to raise or lower your credit score. If you want to use your credit card to improve your credit score, it’s important to understand how your credit score is calculated. Your FICO credit score, for example, is made up of the following five components:

  • Payment history (35 percent)
  • Amounts owed (30 percent)
  • Length of credit history (15 percent)
  • Credit mix (10 percent)
  • New credit (10 percent)

How do you use a credit card to improve your credit score? Here are five tips to help you ace the five components of your FICO credit score:

  • Make all of your payments on time
  • Keep the amounts you owe as low as possible
  • Keep your credit accounts active so that you build a long (and positive) credit history
  • Apply for multiple types of credit accounts (such as credit cards, car loans and mortgages) over time
  • Avoid applying for a lot of new credit at once

If you follow those basic steps, you’ll show potential lenders that you can use credit wisely and your responsible credit use will be reflected in your credit score.

Earn and redeem credit card rewards

If you want to get the most use out of your credit card, make sure you’re both earning and redeeming all of the credit card rewards available to you. This means keeping track of which purchases earn the most cash back, points or miles and which redemption options offer the highest value. Many people don’t realize that redeeming credit card rewards for gift cards, for example, is often less valuable than redeeming the same rewards for travel purchases or statement credits.

Every credit card’s rewards structure is slightly different but once you learn how rewards credit cards work and how you can maximize your credit card rewards, you’ll be able to use your card’s points, miles or cash back to save money on nearly every purchase.

Leverage multiple credit cards

Once you know how to use credit wisely, it’s time to think about adding a second credit card to your wallet. Try to choose a credit card that complements your current credit card. If you have a Chase credit card, for example, adding a second Chase card to your wallet will allow you to pool your Chase Ultimate Rewards® and increase your redemption options. You might also want to consider pairing a flat-rate cash back rewards card with a rotating bonus category rewards card, giving you the opportunity to earn high-level rewards on nearly every purchase.

How long should you wait before applying for a second credit card? In most cases, it’s a good idea to wait three to six months between credit card applications—that way, you won’t risk damaging your credit score with too many applications at once.

Be aware that some credit issuers have restrictions that will limit your ability to apply for new credit or earn sign-up bonuses on new cards. Chase’s 5/24 rule, for example, reduces access to cardholders who have taken out more than five credit cards (with any issuer) in the past 24 months.

The bottom line

Want to know how to use a credit card? Start by choosing the right card for your needs. Then, make every payment on time and keep your balances as low as possible. Learn how your credit card use affects your credit score, and work to build a positive credit history. Make sure you take advantage of all the rewards and perks that come with your credit card, and, when you’re ready, choose a second credit card that can help you maximize your rewards.