Five rules of thumb for using a credit card

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired.

An estimated 189 million American adults  own at least one credit card. Despite this large owner base, Americans are less financially literate than many other nations. A 2015 study found that American consumers have a financial literacy rate that falls far behind our European counterparts in Finland, Switzerland, and Denmark.

This lack of financial literacy creates problems for American card owners who are not as well versed in good credit card ownership practices because they can easily get into debt. A study in 2017 found that 38 percent of Americans are in credit card debt. Much of this debt can be attributed to a lack of institutional knowledge on a topic that can be notoriously complicated.

Having a personal financial plan and following a “rule of thumb” for your personal credit card spending can be an effective tactic for managing and avoiding unnecessary debt.

Here are a few of our top five rules of thumb for credit card ownership based on common questions that card owners have for experts in the industry.

Rule #1: Charging items under $20

Like many aspects of credit card ownership, best practices regarding the lowest amount you should charge to your card is a frequent subject of debate.

Brett Theodos, a Senior Fellow with the Urban Institute, recommends that credit card owners not charge anything that costs less than $20 to their credit card. One reason for this suggestion is that low charges can add up quickly and they are easy to forget. If consumers forget small purchases and don’t pay their balance on time, they can quickly rack up debt due to the interest added to the charges.

A second reason that Theodos believes it is not good practice to charge items that cost less than $20 is that “credit keeps charging. It adds approximately 20 percent to the total.”

On the other hand, industry experts such as Bankrate’s Ted Rossman believe that this shouldn’t always be a hard and fast rule.

According to Rossman, “I’m a big fan of earning credit card rewards on purchases you would have made anyway, and I think even the small stuff can add up. That’s assuming, of course, you’re not paying hefty interest rates.”

Rossman’s insights only further heighten the subjective nature of credit card ownership and best practices. Whether or not to charge purchases under $20 depends on your personal spending habits and what type of credit card you own.

If you’re the type of consumer who will remember to pay your balance off each month without fail regardless of small purchases, then the “under $20 rule” may not apply to you. However, if you are prone to forgetting small purchases and often rack up a high balance without meaning to, then this rule of thumb could save you money on interest in the long run.

Rule #2: Pay off your balance on time and in full

One of the most effective ways you can both build your credit score and potentially extend your future line of credit is by paying off your balance in full every month. While many credit card owners make only a minimum payment on their  balance some months, this practice can end up costing you more over time.

The minimum payment is the lowest amount you can pay toward your existing balance to avoid a late fee, and while only paying the minimum will keep you in good financial standing with the issuer, interest could wind up costing you far more than the initial purchase.

Of course, there may be times when paying off your full balance is not financially viable, but, if possible, paying off your full balance will save you money that would otherwise go to keeping up with added interest.

Rule #3: To close or not to close? Old credit card accounts

A frequent question many credit card owners have is what to do about old credit card accounts that they don’t use anymore.

Our best answer? It depends.

Instead of closing an older credit card, you should consider managing it with a plan that involves making small purchases periodically to keep it active.

It is also worth mentioning that if you have accounts with high annual fees that you don’t use it may be prohibitively expensive to keep them open, in which case it is smart to close the account.

Rule #4: Monitor your credit card account activity

For some credit card owners, checking their account and transaction history may only happen once a month when they pay their credit card bill.

This, according to Chartered Financial Analyst Mike Hennessy of Harbor Crest Wealth Advisors, is not the best practice for credit card owners because, “if you wait a month [to check your credit card transaction history], a lot of damage can occur and your opportunities to fix the issues may become more involved.”

In an interview with Bankrate about the best practices for credit card owners, Hennessy went on to say, “Perhaps you don’t remember just how many Starbucks runs you made last month, but the transaction report doesn’t lie. Well, it does sometimes lie, and that is the advantage of periodically monitoring your transactions. It happens more than you think but double charges, charges not matching, and fraudulent activity can all occur on your card. By monitoring your transactions, you can cut down on the time and financial issues associated with incorrect charges.”

Rule #5: Don’t spend more than 30% of your credit limit

When you get your first credit card, or even just get your credit line extended, you may be tempted to spend more to match your newly available funds.

This decision, however, could hurt your credit score and financial standing with the card issuer regardless of if you pay the bill off on time or not. This is because something called your credit utilization ratio makes up 23% of your VantageScore and 30% of your FICO score.

Your credit utilization ratio is the relationship between the amount of credit available to you and how much of it you’re using. Credit card issuers look at the percentage to decide how financially stable you are because it is assumed that individuals who use their entire line of available credit may be less financially secure. Because of this, it is recommended that individuals use no more than 30% of their available credit.

Our final thoughts on the best rules of thumb for credit cards

At the end of the day, there are no hard and fast rules of thumb that will apply to every credit card owner. Because of the diverse nature of personal finance, and a large number of credit cards available to consumers, you must make the best decisions for yourself and your financial future.

While no single set of rules for owning a credit card is perfect for everyone, cultivating a system of rules that is perfect for you is a smart practice for optimizing your spending and saving habits.