Getting a first credit card is an exciting experience. Having access to credit allows you to buy the things you want – and pay for them later. What’s not to love? Before you go on a spending spree, however, make sure to learn these five tips for using your first credit card.
Always Keep a Budget
Rule number one with any credit card is knowing your budget – and sticking to it.
Credit cards have two significant appeals: the ability to pay later and the chance to earn rewards. Because of these features, it is easy to fall into the trap of overspending and getting into unnecessary debt.
Before you use your first credit card, understand what you can afford to spend. Most financial experts suggest budgeting with the 50/30/20 method:
- 50% of take-home pay towards housing, groceries, and utilities
- 30% of take-home pay for everyday spending and non-essentials
- 20% of take-home pay for savings
Using budgeting techniques is a great way to prevent becoming overwhelmed by spiraling credit card bills and debt.
Keep Your Credit Utilization Low
Credit utilization is a term referring to how much of your available credit you use. Credit utilization is also a critical factor in what makes up a FICO credit score.
At 30% in weight, credit utilization is the second most important factor in a FICO Score, after payment history. Keeping credit use below 30% is necessary for maintaining and building a good credit score. Those hoping to boost their score even faster should aim for a credit utilization rate of 10% or lower.
Pay Your Bill in Full Every Month
Paying your credit card statement in full every month is an essential part of responsible credit use. When you pay your entire statement balance, you set yourself up for financial success.
When a cardholder makes the minimum payment only, interest quickly adds up – especially if the remaining balance is large. Most people who receive their first credit card shouldn’t expect a low APR. Instead, most first-time credit cardholders can anticipate a purchase APR in the 18% to 25% range.
Even the best interest rates, however, are far higher than you can expect with a personal loan. The takeaway? Pay your bill in full every month – otherwise, anticipate interest to pile up quickly. Keep in mind, however, that you don’t have to pay your entire statement balance in one go. You can divide the payment into chunks throughout the billing period – as long as you pay it off before the due date – so that it’s easier for you while you cover other costs.
Set Up Autopay
Automatic payments are the easiest way to ensure you pay your bill on time each month. Payment history makes up 35% of a FICO Score – and even one missed payment can damage your credit and remain on your credit report for up to seven years.
Putting your credit card bills on autopay is the easiest way to achieve these goals and give yourself the peace of mind that everything is under control. Autopay is a near-universal feature with credit cards, meaning this option is a no-brainer and available on most first-time cards.
Don’t Forget About Fees
Most consumers pay attention to things like interest rates on purchases, annual fees, and rewards points earning rates. Unfortunately, many ignore other numbers – namely, fees.
Credit cards have a whole host of fees and charges, including late payment fees, cash advance fees, balance transfer fees, and foreign transaction fees. These might seem small on their own, but they can quickly build up. Perhaps the most dangerous of these charges are those for cash advances. Cash advances can provide access to funds when you need them most but come with fees and high interest charges. As such, they’re not recommended unless you have no alternative.
First Credit Card Tips: Summing It Up
Getting your first credit card is exciting, and it’s a great first step towards building up a long and exemplary financial profile. However, it’s easy to fall victim to rookie mistakes and ongoing slip-ups – like those mentioned above. Make it a habit to keep these in mind to ensure that you’re setting yourself up for success. As long as you’re disciplined and realistic about what you can do with your credit card, you’ll have a convenient and satisfying way to purchase the things you need and want.
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