Getting and Using Your First Credit Card
Your first credit card can be equally exciting, tempting and intimidating. Credit cards are a great convenience, however buying things on credit doesn’t mean that they are free – you must repay any debt you incur. Use your card responsibly, and you’ll be on your way to establishing a good credit history that will benefit you significantly in life. Here are some ideas to keep in mind as you get and use your first credit card.
Choosing your credit card
Ideally, the credit card you choose should have the lowest fees, the best interest rate and provide the most benefits possible when you use it.
- Annual Fees: These vary, and ideally, you should select a card with no annual fee at all. But keep in mind that this isn’t the only fee to watch out for. All companies charge a fee for late payments, and some may charge for inactivity, balance transfers and a wide variety of activities. The lesson here is to check the terms of the credit card agreement carefully before making your card decision.
- Interest Rates: It pays to shop around for an interest rate that is low as possible – particularly if you anticipate carrying a balance from month to month. A low, fixed-rate card is better than a low, variable-rate card. Be careful of introductory "teaser" rates. It’s more important to get a good interest rate for the life of the card, than to be attracted by a low teaser rate that will quite possibly increase dramatically after the introductory term is over. Again, read the details of the credit card agreement before selecting your card.
- Additional Benefits: Some cards offer benefits such as airline mileage or rewards which can be redeemed for merchandise or gift cards. This may be in exchange for a higher annual fee or interest rate. You may have to work on establishing your good credit before you can be approved for cards with rewards. Before accepting this type of card, make sure that the fees and interest rate do not offset the benefits.
Guidelines for using your credit card
- A credit card is serious business. The issuing company is lending you money and you have a responsibility to pay it back.
- Avoid interest rate charges by paying off the entire balance each month.
- Make your payments on time. Establish a monthly recurring automatic payment from your checking account so you don’t waste money on late payment charges.
- Eliminate temptation and avoid over-spending by limiting yourself to one credit card.
- Keep the credit limit low. $500 or $1000 is enough for most first-time credit card users.
- Keep the card for emergencies only. Use cash and check cards for all other purchases.
- You are responsible for all charges on your card. Do not let others borrow it or give out the number.
- Keep your receipts and compare them against your credit card monthly statement. Mistakes do occur!
- Avoid cash advances. The interest rate charged for advances is usually high and interest is charged immediately.
- Create a spending and budget plan. Do not let your credit card payment exceed 20% of your monthly income.