While it’s important to begin building your credit early, it’s even more important to build it responsibly. As early as 18, you’ll start to receive credit card offers. While these offers can be tempting, understanding all the details before accepting them is crucial.
Here are six tips to consider before getting your first credit card.
1. Do Some Research Before Applying
As the offers start pouring in for credit cards, you must take the time to find the right card for you. Issuers of credit cards, by law, are required to disclose their fees and interest rates on their website. Compare each card thoroughly – not only the promotional offers available. These incentives eventually end, and you want a credit card with low rates, above all else.
It’s important to note that your credit is checked by the lender each time you apply for a credit card. This will put a hard inquiry on your credit report. Too many inquiries can negatively affect your credit score. Make sure you only apply for the credit card that you feel best matches your specific needs.
2. Apply for a Credit Card with Low Fees and Rates
Many credit card companies lure in new customers with special introductory rates or rewards programs. When building your credit, these perks should not outweigh what truly matters – the interest rate and fees. Your goal is to obtain a credit card that works in your favor – helping you establish a healthy credit history and provide financial assistance as needed.
When learning to manage credit card debt, you should limit how often you use your card. As a result, many rewards programs won’t significantly benefit you – so, do not be lured by these incentives. Instead, focus on getting the lowest interest rate possible with low fees.
Fees you should research include:
- Annual Fees
- Balance Transfer Fees
- Late Payment Fees
- Over-the-Limit Fees
3. Set Credit Card Spending Limits
Your credit card spending limit is how much you’re able to spend on your card. For example, if you have a credit limit of $2,000, you can put up to $2,000 worth of charges on your card. Higher limits may be too tempting to some – instead, request a lower limit such as $500 from your lender. This will help you avoid overspending and teach you how to manage credit card debt responsibly.
You may also set limits yourself, such as only using the credit card in emergencies or for small purchases like gas for your car. Remember, the goal is to build your credit history and score without getting buried in excessive credit card debt.
4. Keep Low or No Balances on Your Credit Cards
The convenience of credit cards is what makes them financially dangerous. It’s almost too easy to spend money. When you first receive your credit card, make a rule to only use it only for small purchases that you can pay off each month. For example, only use your card to fill up your gas tank during the month. The goal is to use your card but only incur a balance you’re positive you can pay in full each month. This will help you establish your credit history and boost your score.
5. Use Your Credit Cards
When you receive your credit card, be sure to use it. As mentioned earlier, making small purchases you can pay in full each month is ideal for building your credit. If you never use your credit card, your credit history will be limited. Lenders want to see how you use and manage the credit available to you. Plus, your credit card may be closed by the issuer due to inactivity if you do not use it for an extended time.
6. Set Up Automatic Credit Card Payments
Your first credit card is the perfect opportunity for building a healthy credit history. A good credit score will help you later in life when you buy a new car, purchase a home, and can even impact your ability to rent an apartment.
The largest factor in your credit score is your payment history. As a result, you never want to be late or miss a payment. In addition to the damage to your credit, you’ll also likely be met with unwanted fees from your lender.
Enrolling in automatic payments for your credit card is one the best ways to ensure you never miss a payment. Most lenders allow you to enroll in autopay, which makes at least the minimum payment for you each month. Just make sure you have enough in your checking account to cover the amount each month.
We’re Here to Help!
Your first credit card is a great tool to establish and build your credit history. It’s important to remember that your credit card is a loan, and you must manage it responsibly. When researching your options, be sure to focus on the interest rate and fees – not the promotional incentives designed to distract you.
If you would like to learn more about our credit card options or have questions on managing your first credit card responsibly, please stop by any of our convenient branch locations or call us at 800-782-4899.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.