Building your credit score and having a demonstrated ability to manage credit is an important step in developing a good financial history. One of the most common and easiest ways to start this process is by taking out a credit card and using it responsibly for an extended period of time. While it’s generally not too difficult to get your first credit card, it might be difficult at first to learn how to manage it so that it helps your credit and does not negatively affect it.
Here are some tips to help you excel with your first credit card:
1. Be aware of fees associated with your card.
Every card has a different set of rules and that includes the fees that you might be expected to pay. Some credit cards will require annual fees – usually these are in exchange for some kind of perk like airline points or cash back. Although these annual fees might fit into your budget just fine, there are many cards that don’t require these. Most credit cards will also charge you late fees if you do not make your payment on time although some may offer a short grace period where you can make your payment slightly late without facing fees.
2. Keep interest rates in mind.
Like with the aforementioned fees, every credit card has a different interest rate called an APR. If you immediately pay off your credit cards as soon as you have the funds the higher interest rate cards will not affect you as much but if you anticipate only paying the minimum you might end up paying a lot more over time.
3. Only spend what you can afford to pay back quickly.
Although emergencies will occur and you may find yourself in a situation where you need to use your credit card for something urgent, it’s generally a good rule to only spend what you can pay back either immediately or by the end of the month. If you get in the habit of spending more than you can afford, it’s easy to find yourself in a situation that’s hard to manage.
4. Pay the minimum every month, plus some.
Once a month you will receive a bill summarizing your purchases and letting you know how much you owe and what your minimum monthly payment is. This amount can range widely but the best practice for paying your credit card bill is to pay off as much as you can each month.
5. Set up notifications on your phone for every purchase made.
This is a tip that you hopefully won’t need, but if you do, then it can make a huge difference. Most credit cards will allow you to set up notifications via text or app that let you know whenever a purchase is made on your card. Usually this is just a good reminder of what you’ve been spending but in the event that your card is stolen you will know the minute someone tries to make a purchase and be able to act quickly.
6. If you carry a balance at all, make sure it’s below 30% of your total credit amount.
Although the best situation is if you’re able to pay off your entire balance monthly, if you do carry a balance, make sure it’s less than 30% of your total available credit. For credit utilization to improve your credit score you need to use less than 30% of your available credit – using any more could negatively impact your score as well. If your utilization temporarily exceeds that amount, that’s usually completely fine – just make sure you are below 30% by the date your bill is due.
7. Be strategic about what you use your credit card for.
While there is nothing wrong with paying certain bills with your credit card, keep an eye on processing fees and other costs that might make it more trouble than it’s worth. If you are brand new to credit cards and you have a small limit, use it for a regular but not excessive purchase. For example, you could use your credit card every time you have to fill up your car with gas or streaming subscriptions.
8. Be aware of perks that may come with your credit card and maximize your returns.
Some credit cards offer perks such as cash back rewards, airline miles, and discounts on certain items. Make sure you are well-informed of what these perks are and use them to your advantage.
9. Be aware of credit card minimums that small businesses may require.
This is usually not an issue but it’s good to be aware of this in case it comes up. Some small businesses may require that you spend a certain amount to use a credit card when you shop in person. This is usually because the business will have to pay a fee for credit card transactions and it helps them manage this. Usually the minimum is anywhere between $20 and $50 depending on the nature of the business.
10. Certain banks and financial institutions offer perks to credit customers such as being able to check your credit score for free.
Always make sure that you are taking advantage of every service your financial institution offers – this can include calculators, financial planning tools, and the ability to check your credit score for free on a regular basis. This can be hugely beneficial as you build your credit score so if your bank does offer this service, make sure you use it.
Getting a credit card for the first time can be an exciting and tempting experience. As long as you manage your credit card responsibly, there are many ways for you to boost your financial health and benefit from it.