Financial Basics: How to Use Credit Responsibly

To help celebrate National Financial Literacy Month, we’re getting back to basics: If you want to use credit responsibly, you should start by focusing on the right kinds of debt.

If you want to get credit, you have to show that you can use credit. And specifically, you have to show that you can use credit responsibly.

That means you’ll have to figure out how to get some credit in the first place. And you’ll want that credit to be good credit. And then you’ll also need to know how to use that good credit properly.

Phew! Someone should gather all of that information relevant to proper credit use and stuff it into one easy-to-read article!

Guess what? They did. And the “they” is “us.” And you’re reading that article right now!

How to get credit when you have none.

This topic deserves an entire article of its own. Which is why we gave it one. But we’ll still address it briefly here.

Two of the best ways to start building credit are to either get a secured credit card or become an authorized user on someone else’s card. A secured credit card requires cash collateral, but you’ll be able to get one even if you don’t have a good credit score or any credit at all.

Becoming an authorized user on someone else’s card will allow you to start building your credit off of theirs. You could also mess up their credit, however, so be sure to take it seriously.

Now let’s get into good and bad debt.

Try to focus on good debt.

This is the credit you want. The credit or debt that, if used properly, will bring your credit score up.

“Potentially good credit involves no fees or interest,” explained Todd Christensen, education manager for Money Fit by DRS, Inc. (@MoneyFitbyDRS). “It has a positive impact on your credit rating but does not lead to overspending. Good credit also leads to growth in your net worth. Good credit is directly tied to potentially beneficial debts, such as a mortgage or a business loan.”

Certified financial educator Maggie Germano (@MaggieGermano) provided some additional markers of what makes debt good: “Good debt is considered an investment that will typically grow in value or generate income over time. Good debt also tends to have low interest rates. An example is student debt. The idea is that this debt will eventually result in higher income over the course of your life.”

And do your best to avoid bad debt. 

And now for the credit and debt you want to keep away from. Unsurprisingly, it pretty much has all the opposite qualities of good credit.

“Bad debt is any debt that is taken out to pay for things that lose value over time and don’t result in higher income,” clarified Germano. “This type of debt also usually comes with high interest rates. Basically, you end up paying more than the cost of the original purchase. An example is credit card debt. If you keep a balance on your credit cards, the interest grows and makes it difficult to pay off the amount. You can get caught in a cycle that feels like it will never end.”

And Christensen offered his take as well: “Bad credit involves fees and interest. It does nothing to improve your household finances, or it leads to smaller net worth.”

Additionally, and while this may seem obvious, good credit instantly becomes bad credit once you take out more than you’re able to pay back.

“With most credit accounts, whether they are good or bad depends on each situation, and most often when the debt is bad, it’s because the individual borrowed too much for the start,” advised  Jacob Sensiba, financial advisor with CRG Financial Services (@CRGFS).

“The amount you spend on total housing should be less than one-third of your take-home monthly pay. You can get a decent, reliable car anywhere from $5,000 to $10,000. Nobody needs to spend over $20,000 for a car.

“Before you even start borrowing, it’s important to evaluate your credit health/score. If it’s below average, you should take the necessary steps in boosting it before borrowing money. People with healthy credit scores tend to get better interest rates and loan terms than those with poor credit.”

Here are some tips for using credit responsibly.

So you’ve got that good credit. But now that you have it, what do you do with it? How do you use it properly?

“Only charge what you can afford to pay back in full every month,” urged Mike Pearson, founder of personal finance website Credit Takeoff. “The number one factor that goes into calculating your credit score is your payment history. Basically, if you miss even one payment, it will seriously lower your credit score.

“So if you plan on using credit, you need to make sure that you’re only spending what you can actually afford—because if you charge too much and end up missing a payment, it will hurt your credit score.

“Keep your credit utilization under 35 percent. The #2 factor that goes into determining your credit score is something called your ‘credit utilization.’ This simply means the amount of credit you’re using compared to your total credit limit. For example, say you have a $10,000 credit limit on your credit card. You’d want to keep your balances below $3,500 (35 percent) at any given time so you don’t damage your credit score.”

Another way to improve your credit utilization is by gaining a greater line of credit.

“Call current creditors and ask if they will increase your credit line,” suggested real estate broker, loan broker, and credit consultant Julie Marie McDonough (@juliemarie0711) “Example: current credit limit on a credit card of $1,000 with a $900 balance is using 90 percent of the credit line. The amount owed or utilization ratio can be reduced to 45 percent of the credit line just by increasing the credit limit from $1,000 to $2,000.

“Now you owe the same $900, but with the credit limit increased to $2,000 you are only using 45 percent of the credit limit. Thus increasing your credit score up to 30 percent in 30-90 days. The hard part is not charging more on the credit card. Have a little self-discipline and know you have just created a sort of emergency fund if needed.

“Don’t make things worse, just one ‘30 day late’ will stay on your credit for up to seven years. If you can’t pay on time, pay the minimum monthly payment as soon as possible, but make sure the payment is posted on the 29th day after the due date. You will owe a late fee in the following month, but that is still better than a bad mark on your credit for seven years and the decrease in credit score.”

Building good credit habits is the hardest part. But eventually, it’ll be like second nature to you. May you and your credit soar! To learn more about managing your finances responsibly, check out these other posts and articles from OppLoans:

Do you have a  personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Author and Accredited Financial Counselor®, Todd R. Christensen, MIM, MA, is Education Manager at Money Fit by DRS, Inc. (@MoneyFitbyDRS), a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. Having facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management, he based his first book, Everyday Money for Everyday People (2014), on the discussions, tips, stories and ideas shared by the tens of thousands of individuals and couples in attendance.
Maggie GermanoMaggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit
Julie Marie McDonough (@juliemarie0711) has more than twenty-eight years’ experience as a real estate broker, loan broker, and credit consultant. She started her career in the mortgage lending industry and later added a Real Estate division and Credit Consulting. Julie is known as “The Credit Lady” and is the author of “How to Make Your Credit Score Soar”. She has been featured on SiriusXM, Corporate Talk, The Answer and written articles for Credit Karma, and many others. Julie is a consumer advocate and speaker who has helped countless people correct errors on their credit reports so they can optimize their credit scores and get the best mortgage rates possible when purchasing a home. Some of her credit-consulting clients refer to her as a miracle worker. Julie is recognized for her vast knowledge in the industry and is sought out for her expertise.
Mike Pearson is the founder of Credit Takeoff, a research-driven personal finance site for people looking to improve their credit. A proud member of the 800 Credit Club, Mike writes about practical steps that everyday consumers can take to increase their credit scores. His advice on credit repair and credit scores has appeared in QuickBooks, Go Banking Rates, and
Jacob Sensiba is a Financial Advisor. His areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. His process entails guiding my clients through their financial journey and educating them along the way. Sensiba’s goal is to make the public more aware of their finances and to improve their level of financial literacy. Visit their website for our disclosures: CRG Financial Services (@CRGFS).

The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.