Are you using your credit card responsibly?We are consistently reminding our readers that they should be using their credit cards responsibly, but what exactly does that mean? A credit card can be an invaluable financial tool, but as with any tool, there are actions you can take to maximize your credit card’s usefulness — as well as those that can harm you in the long run. To help you get an understanding of how to use your credit card responsibly, we’re outlining four habits that all credit card owners — whether first-timers or seasoned veterans — should follow.

Pay your credit card bill on time

Even the most financially responsible people can hit hard times or experience a personal emergency, but barring such extraordinary circumstances, it’s important to make your monthly credit card payments early or by the due date. Late payments can come at a high price — depending on your credit card’s terms and conditions, paying late might make you subject to a late fee or even a penalty APR. The latter constitutes an increase of your credit card’s APR as a result of falling behind in your payments. If you have a rewards credit card, making a late payment may even forfeit your earned rewards. None of the these are ideal, so it’s wise to try and avoid them by making sure you always make timely payments to your credit card. If you find yourself having trouble, remember you have options. For example, some card issuers, like Citi, allow you to adjust your payment due date yourself or request a different payment due date than what you’re given to start with, so that your payments can align with your paycheck each month. Even if you’re only paying the minimum amount due, it’s still better than no payments at all — though that brings us to our next tip for using your credit card responsibly.

Don’t carry a balance (or max your card out)

One of the myths surrounding credit cards is that they always end up costing more money in the long run, but that doesn’t have to be true. People who pay more than the cost of their purchases (or balance transfers) with a credit card are typically those who carry a balance from one month to the next and incur interest as a result. Although maxing out your credit card’s available balance completely is certainly different from carrying a balance of a couple hundred dollars for a month or two, both can cause harm to your credit. That’s because approximately 30% of your credit scores are based on your credit utilization ratio, which is calculated by dividing any debt you owe by your total credit limit(s). For example, if you have a credit card with a $500 limit and a $200 balance, your credit utilization ratio is 40%. The idea is to keep your credit utilization ratio below 30% — meaning you want to be careful how much of your credit limit you’re using at any given time. Since your credit utilization ratio impacts such a high percentage of your credit scores, maxing out your credit card entirely will have a seriously negative impact on your credit scores. In addition, carrying a balance every month, even if it’s just a couple hundred dollars, will also impact your credit scoresĀ and the interest will add up over time. If you have a card with a 0% intro APR period on purchases and/or balance transfers, you may be able to get away with carrying a balance for a number of months without accruing interest, but you should not make it a regular habit, as all intro periods eventually come to an end.

Check your statements on a regular basis

In order to make sure that you are keeping up with payments and avoiding going over your credit limit, you will want to analyze your spending habits. Many credit cards offer handy online tools that help with this process, allowing you to create a budget or evaluate which categories you spend the most money on. Not only will keeping a close eye on your monthly statements from your credit card provider ensure that you understand how you’re spending money, but it will also help you in the event that you become a victim of credit card fraud. The sooner you identify fraudulent purchases, the faster you can notify your credit card issuer and get the charges reversed (note that most credit cards offer $0 liability to protect you from being responsible for unauthorized purchases). Becoming a victim of credit card fraud can also indicate that your identity has been stolen, something that is all-too-common in today’s world.

Try to avoid closing your account

With so many new credit cards popping up, offering large and tempting intro bonuses and long-term benefits, you may wind up not using an older credit card as much. Or, you might want to avoid having multiple credit cards at one time, and seek to downsize by closing one or more accounts. It’s important to avoid doing this, if possible, because it can impact your credit utilization ratio, which, as noted earlier, accounts for 30% of your credit scores. For example, if you have two credit cards, one with a $200 credit limit and one with a $1,000 credit limit, and you’ve got a balance of $300 on the latter card, your credit utilization ratio will be 25%. However, if you close the $200 limit credit card, your credit utilization ratio will jump to 30% (and go higher if you increase your balance). It is possible that, after a time, an unused credit card may be closed due to inactivity. Even if it doesn’t hugely impact your credit utilization ratio, closing an account also risks losing account history, which is another factor that determines your creditworthiness. You can prevent this from happening by using an older card at least once a month or every other month to keep it active.

Credit cards can offer significant benefits when utilized correctly. Following the tips above to use your credit card responsibly is one step toward a healthy financial life. Learn more about maintaining your credit and other topics by following our personal finance blog.