5 Times Not To Use A Credit Card (2024)

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Updated: Jun 27, 2023, 9:00am

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The best practice you can follow when using a credit card is to pay off your entire statement balance each billing period. If you know you can’t afford to cover the cost of a purchase by the time your next credit card bill will be due, it’s probably better to avoid putting that charge on your account in the first place.

Most credit cards feature grace periods. So, when you pay off any charges you make during a billing cycle by your due date, you can avoid paying interest on most credit cards. The average credit card interest rate has been climbing this year thanks to recent rate hikes from the Federal Reserve. Therefore, paying off your credit balances is more important than ever.

On the other hand, if you revolve an outstanding balance over to the next month, high-cost interest charges will kick in (unless you’re taking advantage of a 0% APR credit card offer). The choice to revolve a balance will also create credit card debt that you have to deal with at a later date.

Credit scoring models like FICO and VantageScore also consider the credit card balance that appears on your credit report when calculating your credit score and how much of your total credit limit you are using (aka your credit utilization ratio). Credit utilization is a major factor that contributes to 30% of your FICO® Score and plays an important role in your VantageScore credit score too.

Make a habit of paying off your credit card balance each month (ideally before the statement closing date when your card issuer updates the account with the three credit bureaus) and keeping credit utilization rate below 30%.

The prospect of earning cash back, points or miles is the main draw of rewards credit cards. But if you’re tempted to make a purchase solely for the purpose of racking up extra rewards or qualifying for a welcome bonus, it’s probably better to keep that credit card in your wallet. Overspending to chase rewards can lead to financial and credit problems.

You should also be careful about using your credit card to pay certain types of bills, even if you have the money available to pay off the charge right away. Some creditors will add on additional fees when you use a credit card as your form of payment. The addition of a processing fee (often 2%-3%) might offset the value of any extra rewards you might earn, depending on the value of the miles and points you’re trying to rack up.

Another sign it might be better to give your credit cards a break is if you’re having trouble keeping up with the minimum payments on your accounts. The minimum payment is the lowest amount you can pay a credit card issuer to keep your account from becoming delinquent. However, making only the minimum payment won’t help you reduce your debt and could lead to serious financial and credit score problems.

If you find yourself struggling to pay more than the minimum amount due on your credit cards, it’s important to create a plan to address the problem sooner rather than later. Depending on your situation, you might consider consolidating your debt with a personal loan or a balance transfer credit card. And if you feel like you’re in over your head, it might be worth speaking with a trustworthy credit counselor as well to discuss other options.

Using your rewards credit card to pay for a purchase and having friends or family members reimburse you after the fact can be a nice way to earn some extra points, miles or cash back. However, this strategy could backfire if you pay for a transaction upfront and the other parties don’t come through with their promised repayment.

You should only use your credit card to cover the bill if you’re 100% sure the person who’s promised to reimburse you will keep their word (or if a refund is possible in the case of advance reservations). Otherwise, you could wind up paying interest on charges you can’t afford to pay off on your own.

When you apply for financing, especially a larger loan like a mortgage, the lender may review your credit report to review how much debt you owe to other creditors. A high credit card balance—even if it’s only temporary—could increase your debt-to-income (DTI) ratio and reduce the amount of money you qualify to borrow on a new loan.

Another issue with having a high credit card balance before you apply for a loan has to do with your credit utilization ratio. Remember, the more of your credit card limit you use, the worse the impact tends to be on your credit score.

If you know you’re planning to apply for a new loan in the near future, it may be best to give your credit cards a break for a short time. This strategy could help you reduce the credit card balances that appear on your credit reports, possibly lowering your DTI ratio and your credit utilization ratio in the process.

Credit cards are often the smarter way to pay for purchases and even some recurring monthly bills—especially if you can avoid interest and earn valuable rewards along the way. But it’s important to use discretion before you pull out your credit card to cover the cost of a purchase. If you pay with a credit card at the wrong time, you could wind up owing expensive interest charges or, worse, damaging your credit score for the future.

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