Clark Howard: My 7 Rules for Using Credit Cards

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Credit cards are a great way to build your credit history and improve your credit score, but they come with some pitfalls that you’ll want to avoid.

Successfully using credit cards requires proper planning so that you don’t end up with piles of debt at bad interest rates as a result of overspending.

Money expert Clark Howard has seven rules for using credit cards that will help you stay on track and get the most out of your cards.


1. Have at Least Two Credit Cards

Clark is often asked how many credit cards average consumers should have in their wallets. There is no “perfect” number as a maximum, but Clark strongly believes that there’s a minimum number.

“You should always have [at least] two credit cards,” Clark says. “Never one. And never two from the same issuer.”

Referring to it as the “Noah’s Ark Rule,” Clark says having cards from different issuers (banks or credit unions) allows you to diversify your access to credit in case one of the issuers decides to reduce or eliminate your access.

“If we hit a recession, and credit card companies decide they don’t want you and one of them dumps you, you still have the other card,” Clark says. “And if one of them cuts back your limit, you still have the other card.”

This strategy also ensures that you’ll still have access to credit if one of your cards is stolen or compromised.

Paying the balance in full each month on two cards also will help you build your credit history, which can improve your credit score.


2. Pick the Right Type(s) of Credit Cards

If you pay your credit card bills in full each month, Clark is a strong proponent of applying for a cash back credit card. There are several on the market that will give you a flat 2% back on each purchase you make.

As for a second card, Clark recommends that wholesale club members consider applying for either the Costco Anywhere Visa or the Sam’s Club Mastercard. Both of these no-annual-fee cards offer bonus rewards on gas, dining and travel purchases in addition to the in-store perks you’ll receive.

If you need to carry a balance, Clark says that shopping for the lowest fixed APR should be your priority. This will help you minimize interest charges on your balances until you can pay them off. You may find that your local credit union offers the best rates.

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Travel rewards credit cards are popular, but Clark cautions that many consumers may not travel enough for the rewards to offset the annual fees that many of these cards carry. He says that the people who benefit from these kinds of cards are people who travel at least twice a month and have a charge volume of at least $10,000 per month. That’s usually either a very wealthy individual or someone who travels for business.


3. Keep Balances Low and Pay Your Bill in Full Each Month

To get the desired impact on your credit score and your wallet, you’ll want to make sure you’re keeping a watchful eye on your spending habits.

Keeping your credit card balances low helps keep your credit utilization percentage low. This is a factor in your credit score.

Low balances also lead to more manageable bills to pay in full each month. Paying on time and making more than the minimum payment not only saves you from interest charges and late fees, but it also helps with your credit score.

Also keep in mind that the length of time you’ve held a credit card also helps your credit score, which is comprised of these key factors:

A 3D pie chart calculating the 5 categories that make up a credit score including 35% for payment history, 30% for amounts owed, 10% for credit mix, 10% for new credit and 15% for credit history

4. Know Your Interest Rate

If you pay your credit balances in full each month, the interest rate won’t matter. You will not owe any interest.

But on the chance that you have to carry a balance on your cards, it’s important to know which card is going to do the least damage to your wallet.

Your credit card may have a variable interest rate, which means that it can fluctuate monthly based on a number of factors. Staying in tune with the current rate for each of your cards will help you be prepared.

“It’s shocking to me how few people actually know what interest rate their cards have,” Clark says.

As I mentioned earlier in the story, you may find that credit unions offer the best fixed-rate APRs on credit cards. Some offer non-promotional rates of less than 10%.

If you know that you’re going to have to carry a balance for one of your credit cards, always spend using the card that is going to charge you the lower APR. That way you can clear the debt with as little interest owed as possible.

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If the rate on your credit card seems too high, you can call your issuer and ask for a reduction. That doesn’t always work, but it’s a worthwhile question to ask — especially if you’ve been a good customer.


5. Don’t Use Balance Transfer Cards for New Purchases

If you’re like me, you probably receive credit card offers in the mail pretty often that tout 0% APR periods on balance transfers and new purchases.

Clark says it’s really important not to mix the two.

If you open a credit card to take advantage of a 0% APR balance transfer period, be sure that you DO NOT also use that same card for new purchases.

Not only does this defeat the purpose of the balance transfer, which was likely to alleviate the pain you were feeling from existing credit card debt, it also opens you up to new credit card debt that may not be eligible for that same 0% period.

Read more here about avoiding common mistakes that people make with balance transfer credit cards.


6. Avoid Closing Old Credit Card Accounts

You may have just applied for a new, shiny credit card with all the rewards you’ve dreamed of, and you may have big plans for it to be your new “everyday spender.”

And, at that moment, you may be tempted to chop your old credit card into a million pieces and call the issuer to cancel.

Clark says you should pump the brakes on that idea, because it may have negative credit score consequences.

Here are a few reasons why:

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  • If you’ve had this card for a period of time, closing the card will shorten the average age of your lines of credit. This negatively impacts your credit rating.
  • You’ll lower your available credit limit by closing the card, which could negatively impact your credit utilization rates. Keeping your utilization low is a key piece to the credit score puzzle.
  • Eliminating this credit card is taking away a chance to continue working positively on your payment history, which carries a 35% weight on the calculation of your score.

7. Devise a Plan To Keep All Credit Card Accounts Active

In many cases, deciding to keep your old credit card accounts open may not be enough.

Many card issuers will close inactive credit card accounts after months of inactivity, so finding a way to use them in your monthly spending (even if they have crummy rewards and a high interest rate) is important.

Clark says there are a couple of simple strategies that can ensure your rarely-used credit cards stay “active” in the eyes of the issuer:

  • Set a calendar reminder to use your card at least once every six months.
  • Make a small recurring purchase and set up automatic payments.

Final Thought 

If you follow Clark’s rules and use credit cards responsibly, you can build a good credit score that will benefit you throughout your life when it comes time to apply for things like an auto loan or home mortgage.

But if you find that the spending power of credit cards brings too much temptation into your life, Clark says he’d rather you go without them than risk running up debt that you’ll spend years repaying.

“Studies show that if you have a tendency to spend more money than you like, you should forget all rewards credit cards and just live on cash,” Clark says. “You’ll have the greatest reward you’ll ever have: greatly reduced spending.”


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