Getting and using your first credit card
If you're looking for your first credit card, here are some guidelines to help you pick one with some additional ideas on how to use it wisely.
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.
These vary, and you should try to 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
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. You're better off with a good interest rate for the life of the card than a low teaser rate that will probably increase dramatically after the introductory term is over. Again, read the details of the credit card agreement before selecting your card.
Some cards offer benefits such as airline mileage or rewards that 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 don't 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. Here are some guidelines to help you use your card wisely:
- Pay off your balance each month – This will help you avoid interest rate charges.
- 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.
- Limit yourself to one credit card – Keep the credit limit low: $500 or $1000 is enough for most first-time credit card users.
- Keep your card for emergencies only – Use cash and debit cards for all other purchases. You are responsible for all charges on your card, so don't freely give out the number or let others borrow your card.
- Compare your receipts against your monthly statement – Mistakes do occur, and you should always correct them.
- Never use cash advances – The interest rate charged for advances is usually high, and interest is charged immediately.
- Create a spending and budget plan – Don't let your credit card payment exceed 20% of your monthly income.
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